SEZ units can sell locally at lower duty for one year

New Delhi: In a relief to exporters, India has announced a one-time relief measure for units in special economic zones (SEZ), allowing them to sell goods in domestic markets at a lower customs duty for one year, and extended fiscal benefits under the Remission of Duties and Taxes on Exported Products (RoDTEP) by six months, until September 30, amid the conflict in West Asia. The government is working on a broader framework on harmonisation of various export promotion schemes with a key focus on enhancing exports.

The measure for SEZs was announced in the Budget FY27 to shield exporters from higher American tariffs but exporters termed it a timely move amid the ongoing crisis and would enable units in SEZs to use idle capacity.

“The goods for which exemption under this notification are claimed should have been manufactured by the unit in the SEZ and should have undergone a minimum value addition of 20%,” the finance ministry said in a notification


The relief will apply from April 1, 2026, to March 31, 2027, and expected to benefit approximately 1,200 SEZ manufacturing units. However, the benefits will not apply to units operating in Free Trade Warehousing Zones.

As per the notification, SEZ businesses can sell a capped share of products including chemicals, engineering goods, heavy machinery, textiles, footwear, pharmaceuticals, electronics and consumer items in the domestic tariff area (DTA) while paying reduced customs duties, instead of the full import tax applied to foreign goods.

“FAQs might be issued soon on this subject,” said an official.

The reduced duties vary by product, with customs rates of about 5-12.5%, Under the notification, goods made in SEZs and sold in the domestic market will face slightly lower Basic Customs Duty, and in some cases reduced Agriculture Infrastructure and Development Cess.

“This is a timely and well-considered measure that thoughtfully balances the challenges faced by SEZ units with the need to safeguard domestic industry,” said Ajay Sahai, director general, Federation of Indian Export Organisations.

Industry chamber CII said that the continuation of RoDTEP at existing rates and value caps will help sustain export competitiveness, especially for sectors facing cost pressures and volatile global demand.

“Equally significant is the one-time relief provided to SEZ units by permitting limited DTA sales at concessional duty rates…it will enable units to better utilize capacity, support liquidity, and safeguard employment, while retaining their export orientation,” said Chandrajit Banerjee, Director General, CII.

Separately, the government extended the Rebate of State and Central Taxes and Levies, a key export incentive scheme for apparel, garments, and made-ups till September 30.

“The combined continuation of RoSCTL for apparel and made-ups, along with RoDTEP for other textile products, ensures comprehensive support across the textile value chain. These measures will strengthen export competitiveness, particularly for MSMEs, and reaffirm the Government’s commitment to sustaining India’s position in global textile trade while ensuring policy continuity for exporters,” textiles ministry said in a statement.

Conditional, limited benefit

The SEZ relief comes with strict conditions: units must have started production by March 31, 2025, ensure at least 20% value addition, and limit domestic sales to 30% of their highest export value in the past three years. They will also be subject to audits under SEZ rules.

This 30% cap is critical as it ensures that SEZs remain primarily export-focused, while still providing a meaningful buffer against global demand shocks, the source said, adding that this domestic sales enablement would act as a stabilization mechanism for manufacturing operations, and prevents any large-scale diversion of output that could disturb domestic markets.

While the move to allow sales to DTA signals policy flexibility amid weak global demand, exporters said the duty concessions are marginal, around 1% for many products, with no relief on IGST, and exclusion of petrol and diesel.

“It is a step in the right direction, but the industry feels that duty rates have not been brought down much. With these duty rates, SEZ units will not be able to compete with the imports of the same goods in DTA from FTA countries,” said Alok Chaturvedi, Director General, Export Promotion Council for EOUs and SEZs.

As per Bipin Sapra, partner at EY, the notification exempting the final product cleared from SEZ to DTA for specified goods reduces the incidence of customs duty cost on the goods manufactured in an SEZ.

“However, the industry needs the customs duty to be equal to the duty foregone on the imported inputs to be competitive with goods imported under an FTA or the goods produced under the Manufacturing and Other Operations in Warehouse Regulations scheme,” he said.

Total exports from SEZs rose 7.37% to $172.27 billion in FY25. There are 276 operational SEZs in the country with 6,279 units.

Certain sensitive sectors, especially where domestic industry needs protection or where tariffs are already low, are kept outside the relief measure.

On the lower duty rates, the source said it is part of a “larger control framework”.

Certain sensitive sectors, especially where domestic industry needs protection or where tariffs are already low, are kept outside the relief measure.

On the lower duty rates, the source said it is part of a “larger control framework.”

“It is calibrated to broadly neutralize their cost advantage, so that goods entering the domestic market are not unfairly priced. The linkage with Most Favoured Nation rates also helps ensure that the overall level of protection for domestic industry is maintained,” the source added.