SPECIAL ECONOMIC ZONE (SEZ)
With a view to providing an internationally competitive environment for exports, the Government of India announced the SEZ Policy in April 2000. The objectives of the SEZ Policy include making available goods and services free of taxes and duties supported by integrated infrastructure for export production, expeditious and single-window approval mechanism and a package of incentives to attract foreign and domestic investments for promoting export-led growth.
Initially, SEZs in India functioned from 1 November 2000 to 9 February 2006 under the provisions of the Exim Policy/Foreign Trade Policy and fiscal incentives were made available through the provisions of relevant statutes. This system did not lend enough confidence to the investors to commit substantial investment for development of infrastructure and for the setting up of units for export of goods and services.
In order to provide a long-term and stable policy framework with minimum regulatory regime and to provide expeditious and single-window clearance mechanism in line with the international best business practices, a Central Act for Special Economic Zones was therefore found to be necessary. The Special Economic Zones Act, 2005 (SEZ Act) was enacted by the Government in 2005. Subsequently, the Special Economic Zones Rules, 2006 (SEZ Rules) were notified on 10 February 2006. Consequently, the SEZ Act came into operation w.e.f. 10 February 2006.
The SEZ Policy provides for simplified procedures and single-window clearance mechanism to deal with matters under Central/State enactments. For SEZ developers, there are different minimum-land requirements for different classes of SEZs. Every SEZ is divided into a processing area, within which only the SEZ units would come up, and the non-processing area, where the supporting infrastructure is to be created.
The salient features of the SEZ Policy are as follows:
- Simplified procedures for development, operation, and maintenance of the SEZs and for setting up units and conducting business in SEZs;
- Single-window clearance for setting up of SEZ;
- Single-window clearance for setting up units in SEZ;
- Single-window clearance on matters relating to Central as well as State Governments; and
- Simplified compliance procedures and documentation with an emphasis on self-certification.
ELECTRONIC HARDWARE TECHNOLOGY PARK (EHTP)
An Electronic Hardware Technology Park (EHTP) may be an individual unit by itself or a unit located in an area designated as EHTP Complex. As in the case of STP Scheme, the EHTP Scheme is also administered by the Ministry of Communications & Information Technology.
An EHTP can also be set up by the Central Government, State Government, public or private sector undertakings or any combination of them.
Benefits of EHTP Scheme
- Income Tax holiday as per section 10A of the IT Act
- An EHTP may import free of duty capital goods, raw materials, components and other related inputs. Second hand capital goods may also be imported by EHTP units
- An EHTP may gear up to 100 per cent foreign equity
- Supplies that are effected in DTAs under global tender conditions and payment in forex are also considered as part of relinquishment of export obligation
- An EHTP unit may be setup for both software and hardware in an integrated manner
- EHTP unit may purchase indigenous goods free of excise duty
- EHTP unit may sell Goods/Services in DTA up to 50% of FOB value of exports, subject to fulfillment of positive NFE as per the policy & payment of applicable duties.
SOFTWARE TECHNOLOGY PARK (STP)
The Software Technology Park (STP) scheme is a 100% export oriented scheme for the development and export of computer software & services using data communication links or in the form of physical media including the export of professional services. The major attraction of this scheme is single point contact service to the STP units.
The customer premises in India is connected to their client located abroad by gateway which is located at STPI’s Centres through a radio link ,using either point to point or point (CDMA) to multi point radio (TDMA) Link.
The concept of STP Scheme was evolved in 1991 and enunciated the following objectives:
- To establish and manage infrastructure resources such as Data Communication facilities, Core Computer facilities, Built-up space and other common amenities.
- To provide ‘single window’ statutory services such as Project approvals, import certification software valuation and certification of exports for software exporters.
- To promote development and export of software services through technology assessments, market analyses, market segmentation and marketing support.
- To train professionals and to encourage design and development in the field of software technology and software engineering.
STP Scheme Benefits & Highlights:
- Approvals are given under single window clearance scheme.
- 100% Income Tax Holiday as per section 10A of the IT Act.
- 100% Customs duty exemption on imports
- Equipment can also be imported on loan or lease basis.
- A company can set up STP unit anywhere in India.
- 100% Foreign Equity is permitted and approved by jurisdictional Director of STPI.
- All the imports of Hardware & Software in the STP units are completely duty free. All relevant equipment/goods including second hand equipment can be imported (except prohibited items)
- Unit shall be a positive net foreign exchange earner. Net Foreign Exchange Earnings (NFE) shall be calculated cumulatively in blocks of five years, starting from the commencement of production
- Use of computer system for commercial training purposes is permissible subject to the condition that no computer terminals are installed outside the STP premises.
- Green card enabling priority treatment for Government clearances / other services.
- The sales in the Domestic Tariff Area (DTA) shall be permissible up to 50% of the export in value terms.
- STP units are exempted from payment of corporate income tax (Condition apply)
- The capital goods purchased from the Domestic Tariff Area (DTA) are entitled for benefits like exemption of excise Duty & reimbursement of Central Sales Tax (CST).
- Capital invested by Foreign Entrepreneurs, Know-How Fees, Royalty, Dividend etc., can be freely repatriated after payment of Income Taxes due on them, if any.
- Repartition of foreign currency for payments can be freely done.
- Software units may also use the computer system for training purpose (including commercial training).
Additional Benefits according to different State Government IT Policy:
- Sales Tax Exemption
- Stamp duty Wavier.
- Electricity duty exemption.
- Octroi / Entry Duty Exemption
- Property Tax on par with Residential Premises
- Additional FSI
EXPORT ORIENTED UNITS (EOU)
The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31 st December 1980. The purpose of the scheme was basically to boost exports by creating additional production capacity.
The EOU scheme is, at present, governed by the provisions of Export and Import (EXIM) Policy, 1997-2002. Under this scheme, the units undertaking to export their entire production of goods are allowed to be set up. The EOUs can export all products except prohibited items of exports in ITC (HS).
Under the EOU scheme, the units are allowed to import or procure locally without payment of duty all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories of equipments including material handling equipments, required for export production or in connection therewith. However, the goods prohibited for import are not permitted. In the case of EOUs engaged in agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granite quarrying, only specified categories of goods mentioned in the relevant notification have been permitted to be imported duty-free.
Benefits under EOU Scheme
- Units are exempted from payment of Income Tax
- All the imports to units are customs duty free.
- Exemption from Central Excise Duty for the procurement of Capital Goods and Raw Materials from domestic market.
- Units are entitled to sell the product in local market upto 50% of the products exported in value terms.
- 100% of foreign equity is permissible.
- Reimbursement of Cenral Sales Tax pad on domestic purchases.
- Full Freedom for sub-contracting.
- Exemption from the payment of Electricuty duty.
- EOU unit can be set up at any of over 300 places all over India
- The unit can import capital goods, raw materials, consumables, packing material, spares etc. without payment of customs duty. Similarly, these can be procured indigenously without payment of excise duty. Second hand capital goods can also be imported.
- They have to achieve positive NFE (Net Foreign Exchange Earnings).
- Minimum investment in plant and machinery and building is Rs 100 lakhs for EOU. This should be before commencement of commercial production.
- Fast Track Clearance Scheme (FTCS) for clearances of imported consignments for EOU.
- Generally, all final production should be exported, except rejects upto prescribed limit.
- Sale within India should be on payment of excise duty. The duty which will be equal to normal customs duty which would be payable on such goods, if imported. However, in certain cases, excise duty payable will be only 50%/30% of normal customs duty payable on such goods if imported into India .
- Sub-contracting of production outside on job work basis is permissible after obtaining necessary permission on annual basis
- Job work for exports is permitted
- Samples can be sold / given free within prescribed limit
- Unutilized raw material can be disposed of on payment of applicable duties
- The unit can exit (de-bond) with permission of Development Commissioner, on payment of applicable duties.
- Central Sales Tax (CST) paid on purchases is refundable (but not local tax).
- Prescribed percentage of foreign exchange earnings can be retained in EEFC account in foreign exchange.
- 100% foreign equity is permissible, except in a few cases.
- Supplies made to EOU by Indian supplier are ‘deemed exports’ and supplier is entitled to benefits of ‘deemed export’.
- Restrictions under Companies Act on managerial remuneration are not applicable.
- No restrictions on External Commercial Borrowings.