Special Economic Zone is an industrial cluster meant largely for exports.
An SEZ is governed by a special set of rules aimed at attracting direct investment for export-oriented production.
The Special Economic Zones Policy was announced in April 2000 with the objective of making the Special Economic Zones an engine for economic growth, supported by quality infrastructure and an attractive fiscal package both at the Central and State level with a single window clearance.
Asia’s first EPZ was set up in Kandla in 1965.
Seven more zones were set up thereafter.
However, the zones were not able to emerge as effective instruments for export promotion on account of the multiplicity of controls and clearances, the absence of world-class infrastructure and an unstable fiscal regime.
While correcting the shortcomings of the EPZ model, some new features were incorporated in the Special Economic Zones (SEZs) Policy announced in April 2000.
Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 and received Presidential assent on the 23rd of June, 2005.
The SEZ Act, 2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for drastic simplification of procedures and for single window clearance on matters relating to central as well as State governments.
The main objectives of the SEZs Act are—
 Generation of additional economic activity.
 Promotion of exports of goods and services.
 Promotion of investment from domestic and foreign sources.
 Creation of employment opportunities.
 Development of infrastructure facilities.
Incentives and facilities offered to the SEZs
Facilities of SEZs in India—
[a] Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units.
[b] 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
[c] Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
[d] External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
[e] Exemption from Central Sales Tax.
[f] Exemption from Service Tax.
[g] Single window clearance for Central and State level approvals.
[h] Exemption from State sales tax and other levies as extended by the respective State Governments.
[i] Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
[j] Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
[k] 100 per cent FDI is allowed in SEZs through the automatic route.