Special Economic Zone (Sez) – GST and EWB Applications In Brief
GST and E-way bills have been significant policy changes implemented by the Indian Government to reform the taxation system and ensure the efficient movement of goods across the country. While these changes have a widespread impact on businesses, their effects on Special Economic Zones (SEZ) have been particularly noteworthy.
SEZs are designated areas within India that are subject to specific laws and regulations designed to encourage export-oriented industries and boost economic growth. The new tax system has led to changes in how businesses operate within the SEZs, including changes in documentation, compliance requirements, and tax liability. Additionally, the E-way bill system has created new challenges for businesses regarding transportation and logistics.
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What is a Special Economic Zone?
A Special Economic Zone is a designated area where businesses can comply with the law more easily and pay easy taxes. Special Economic Zones are found within the country’s boundaries, but to differentiate them from the regular taxation system, they are treated as foreign countries.
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This is why the supplies transported to and from the special economic zones are handled slightly differently than usual. Simply put, even though the special economic zones are a part of India, they are considered foreign countries.
According to this, any supply transported to or from a special economic zone is considered an interstate supply, and IGST will be applied to such transactions.
What are Exports and Imports?
Since the Special Economic Zones are considered foreign territories, the transactions can be called exports and imports:
What is an Export in the Context of SEZ?
Exports refer to the supply of goods outside India from a special economic zone irrespective of the mode of transportation. It also refers to the supply of goods from one unit or developer in a special economic zone to another unit or developer within the same special economic zone or another special economic zone.
What is an Import in the Context of SEZ?
Imports refer to the supply of goods transacted to a special economic zone from a foreign country, irrespective of the mode of transport. It also refers to receiving goods from one unit or developer in a special economic zone to another unit or developer located within the special economic zone or to another special economic zone.
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GST Laws on Special Economic Zones
When it comes to taxes, living in one of the SEZs can be helpful to some extent. Supply of goods or services or both to an SEZ unit or developer is regarded as zero-rated. This implies that these supplies are GST-free. In other words, supplies made to SEZ have been deemed exports and are not subject to GST. So, the manufacturers and distributors of goods for SEZ can:
- Supply goods or services under a bond or LUT without paying the IGST and claiming an ITC; or
- Supply after IGST payment and request a tax refund.
When a Special Economic Zone supplies goods or services or both, it will be regarded as an inter-state supply and subjected to IGST.
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The only exception to this rule is when an SEZ supplies goods, services, or both to a Domestic Tariff Area (DTA). In this case, the SEZ will be excused from paying import taxes and customs charges because this is considered an export to the DTA.
Impact of E-way bill on Special Economic Zones
When transporting goods, transporters registered under GST must carry an e-way bill for goods being transported of value greater than Rs. 50,000. SEZ goods are handled similarly to other interstate goods. SEZ units or developers must also follow e-way bill practices that other businesses in the same industry follow. When supplies are sent from an SEZ to a DTA or another place, the registered person who facilitates the flow of goods is required to generate e-way bills.
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SEZ Transactions Under GST
Special Economic Zones (SEZs) are treated as foreign territories for trade operations and duties. Under GST, supplies to SEZ units or developers are considered zero-rated. This means goods or services supplied to SEZs are eligible for GST exemption or refund.
Businesses can either supply without charging GST (under Letter of Undertaking) or pay GST and later claim a refund. SEZ transactions must follow strict rules, especially regarding the location of the recipient and the nature of the supply.
With BUSY Accounting Software, managing SEZ invoices, zero-rated supply entries, and export compliance becomes simpler and error-free.
Tax Benefits and Exemptions in SEZ Transactions
Supplies made to SEZ units are eligible for GST benefits like zero-rated supply status. This allows the supplier to avoid paying GST upfront or to claim refunds on taxes paid. In contrast to regular inter-state supplies, IGST is not levied on SEZ transactions if certain conditions are met. These benefits help promote exports and economic growth within SEZ zones.
However, to claim these exemptions, proper documentation like LUT/Bond, endorsement from SEZ authorities, and invoice compliance is essential. BUSY Software supports seamless GST handling for SEZ-related entries with automated validation and reporting features.
GST Compliance and Documentation for SEZ Units
SEZ-related transactions demand high levels of documentation and GST compliance. Businesses must ensure that invoices clearly mention “Supply to SEZ”, carry valid GSTINs, and are endorsed by the SEZ officer. Filing GSTR-1 and GSTR-3B with proper disclosure of zero-rated supplies is also mandatory. Any lapse may lead to denial of tax benefits or refund rejections.
BUSY Software helps businesses comply by auto-generating SEZ-compliant invoices, maintaining a record of LUTs/Bonds, and enabling accurate filing of GST returns. With built-in checks and alerts, BUSY ensures that your SEZ documentation and GST compliance remain accurate and up to date.
Conclusion
The introduction of GST and E-way bills has significantly impacted businesses operating within Special Economic Zones in India. The new tax system has led to compliance requirements and tax liability changes for these businesses. The E-way bill system has also created challenges for transportation and logistics.
However, by understanding these challenges and taking appropriate measures, businesses operating within SEZs can adapt to the new tax system and ensure compliance. The success of businesses in SEZs depends on their ability to navigate these changes and optimise their operations to remain competitive.
I am a chartered accountant with over 14 years of experience. I understand income tax, GST, and balancing financial records. I analyze financial statements and tax codes effectively. However, I also have a passion for writing, which is different from working with numbers. Recently, I started writing articles and blog posts. My goal is to make finance easier for everyday people to understand.
Frequently Asked Questions
- What are the tax benefits provided to SEZ units under GST?SEZ units enjoy zero-rated supplies, meaning they can procure goods or services without paying GST. They can also claim refunds on unutilized Input Tax Credit (ITC) for exports or supplies to the SEZ.
- Do SEZ units need to register for GST?Yes, SEZ units must register for GST to claim zero-rated supply benefits and comply with GST filing requirements. Separate GSTINs may be required if the SEZ unit has multiple locations.
- What is the GST exemption process for SEZ supplies?Suppliers to SEZ units can claim GST exemption by furnishing a Letter of Undertaking (LUT) or providing proof of export. Alternatively, suppliers can charge GST and later claim a refund.
- Are supplies from SEZ units to Domestic Tariff Areas (DTA) taxable?Yes, supplies from SEZ to DTA are treated as imports and are taxable. The recipient in the DTA must pay applicable GST along with customs duties, if any.
- What is an E-Way Bill (EWB), and is it required for SEZ transactions?An E-Way Bill is a document for goods movement exceeding ₹50,000. It is required for SEZ-to-DTA transactions but not mandatory for movement within the SEZ.
- Are there any exemptions for generating E-Way Bills for SEZ supplies?SEZ-to-SEZ transfers and movements within the SEZ are exempt from EWB requirements, provided they do not cross taxable territories.
- How does the E-Way Bill system apply to inter-unit transfers within an SEZ?Inter-unit transfers within the SEZ do not require an EWB as these are considered exempt from GST and do not involve taxable supplies.
- Can an SEZ unit claim an Input Tax Credit (ITC)?Yes, SEZ units can claim ITC for inputs used in making zero-rated exports. They must adhere to GST compliance requirements to claim credit.
- What is the role of GST refunds for SEZ suppliers?Suppliers to SEZ can claim refunds on GST paid or on unutilized ITC for zero-rated supplies, ensuring liquidity and minimizing tax costs.
- What are the common challenges faced by SEZ units in GST and EWB compliance?Challenges include delays in refunds, managing complex documentation for zero-rated supplies, reconciling ITC, and ensuring accurate EWB generation for SEZ-DTA transactions.
