Glossary

What is an SEZ?

Author:: Editorial team, serviceexportguide.com
Verified by:: Editorial team
Published: 28 October 2026
Last modified: 30 October 2026
Reading time: 4 min read

Short answer

A Special Economic Zone (SEZ) is an area notified under the Special Economic Zones Act, 2005.¹ Section 53 deems an SEZ outside India's customs territory for its authorised operations.¹ The Act and the SEZ Rules came into effect on 10 February 2006.² Supplies to an SEZ unit or developer for authorised operations are zero-rated under IGST Act section 16.³

Full form	Governed by	Who needs it	Where it is used	Related terms
Special Economic Zone¹	Special Economic Zones Act, 2005 and the SEZ Rules¹²	Exporters with a unit in an SEZ, and suppliers billing SEZ units or developers	GST invoicing, EDF filing for software, income-tax claims under section 10AA³⁴⁵	Zero-rated supply, LUT, EDF, section 10AA, EOU

Indian service exporters meet SEZs in two ways. Some work from inside one, such as an IT company with a unit in a technology park SEZ. Many more bill a client who sits in one, such as a designer or consultant invoicing an SEZ unit in Bengaluru or Pune.

What does SEZ mean in simple words?

An SEZ, or Special Economic Zone, is a zone treated as outside India's customs territory for its authorised operations, which changes how GST and export paperwork apply.¹ Section 53 of the Special Economic Zones Act, 2005 (the SEZ Act) gives an SEZ this deemed status from its appointed day.¹

Unit: The SEZ Act defines a "Unit" as a unit set up by an entrepreneur in an SEZ, including an Offshore Banking Unit and a unit in an International Financial Services Centre.¹
Developer: Section 16(1) of the IGST Act treats a supply for authorised operations to an SEZ developer the same way as one to an SEZ unit.³
Start date: The SEZ Act and the SEZ Rules came into effect on 10 February 2006.²

Everything else on this page follows from that deemed status.

Why does an SEZ matter for Indian exporters and freelancers?

An SEZ matters because billing into one, or working from one, changes your GST, income-tax and FEMA position.³⁴⁵

GST: A supply of services to an SEZ developer or SEZ unit for authorised operations is a zero-rated supply under section 16(1) of the Integrated Goods and Services Tax (IGST) Act.³
Income tax: The SEZ India portal lists an income-tax exemption on export income under section 10AA, with a sunset clause noted from 1 April 2020.⁴
Bank compliance: For units that export software, the FEMA (Export and Import of Goods and Services) Regulations, 2026 name the Development Commissioner in an SEZ as one of the specified authorities that can receive the Export Declaration Form (EDF).⁵

Which of these applies depends on whether you are inside the zone or billing into it.

How does an SEZ work?

An SEZ works through the deemed status in section 53 of the SEZ Act and a set of facilities that the Department of Commerce lists for SEZ units.¹⁴ The SEZ India portal lists facilities and incentives including:⁴

Duty-free procurement: Duty-free import or domestic procurement of goods for the development, operation and maintenance of SEZ units.⁴
Income-tax exemption: An exemption on export income under section 10AA, with the sunset clause noted from 1 April 2020.⁴
Single window: Single-window clearance for central and state approvals.⁴

Section 2(m) of the SEZ Act counts providing services out of India from an SEZ by any mode, physical or otherwise, as an export.¹

How do you bill an SEZ unit as a service provider?

You bill an SEZ unit as a zero-rated supply, and a registered supplier can do so under a bond or Letter of Undertaking (LUT) without paying integrated tax, under section 16(3) of the IGST Act.³

Confirm authorised operations: Zero-rating applies to supplies for the unit's authorised operations.³
Use the LUT route: Supply under a bond or LUT and claim a refund of unutilised input tax credit.³
Endorse the invoice: The invoice endorsement and other details for SEZ supplies are explained in export to an SEZ unit.

For payment rules that apply to SEZ units, see SEZ export payment rules.

What is the difference between billing an SEZ unit and billing a foreign client?

Billing an SEZ unit is a zero-rated supply under GST, while billing a foreign client can be an export of services, because only the foreign client is outside India.³ The table draws on section 16 of the IGST Act and the 2026 FEMA Regulations.³⁵

Client	GST treatment	FEMA export paperwork	Best for
Foreign client	Zero-rated export, if all export conditions are met	EDF and realisation rules apply	Exporters billing clients located outside India
SEZ unit or developer in India	Zero-rated supply for authorised operations	Depends on currency and terms; ask your bank	Suppliers in India billing SEZ units for authorised operations

Section 16(1) of the IGST Act lists these as two separate kinds of zero-rated supply.³

What do people get wrong about SEZs?

People most often mix up the SEZ Act's meaning of export with the GST meaning.¹³

Export label: Section 2(m) of the SEZ Act includes supplying services from the Domestic Tariff Area to an SEZ unit or developer, but for GST that supply is a zero-rated supply to an SEZ, listed separately from exports.¹³
Tax holiday: The section 10AA exemption carries a sunset clause from 1 April 2020, so it does not apply to every unit.⁴

Whether a given benefit applies depends on the unit's approval and start date, so confirm with a chartered accountant.

These terms come up with SEZs:

Zero-rated supply: the GST category that covers exports and supplies to SEZs.
LUT: the undertaking that lets you supply without paying integrated tax.
Section 10AA: the income-tax exemption for SEZ units.
EOU: an export-oriented unit, a different export scheme.
EDF: the export declaration that the Development Commissioner can receive from SEZ software units.

How did we verify this?

We checked this page against the sources below on 30 October 2026. Read our methodology or report an error.

Frequently asked questions

Is a supply to an SEZ unit an export of services under GST?+

No. A supply to an SEZ unit or developer for authorised operations is a zero-rated supply under section 16(1)(b) of the IGST Act, listed alongside exports in section 16(1)(a).³ It is a separate category from export of services, which needs the recipient to be located outside India, and an SEZ unit is in India.

Who receives the EDF for software exported from an SEZ unit?+

Under the FEMA (Export and Import of Goods and Services) Regulations, 2026, the specified authority that receives the Export Declaration Form for software exports can be the AD bank, STPI in the Domestic Tariff Area, or the Development Commissioner in an SEZ.⁵ An SEZ unit should confirm the filing route with its Development Commissioner.

Do SEZ units still get the section 10AA income-tax exemption?+

The SEZ India portal lists a 100% income-tax exemption on export income for the first five years under section 10AA, and notes a sunset clause from 1 April 2020.⁴ Whether a particular SEZ unit qualifies depends on when it began operations, so confirm the position with a chartered accountant.

What counts as an export under the SEZ Act?+

Section 2(m) of the SEZ Act includes providing services out of India from an SEZ by any mode, physical or otherwise.¹ The same definition also counts supplying services from the Domestic Tariff Area to an SEZ unit or developer as an export for the purposes of the SEZ Act, which differs from the GST meaning.

When did the SEZ Act come into force?+

The SEZ Act was passed by Parliament in May 2005, received Presidential assent on 23 June 2005, and came into effect with the SEZ Rules on 10 February 2006.² Its stated objectives include promoting exports of goods and services, attracting investment and creating jobs, according to the Department of Commerce.

This page is general information for Indian service exporters, not tax or legal advice. Rules change and outcomes depend on your facts, so confirm with a chartered accountant before acting.

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