Zinnov Management Consulting provides an insightful comparison between Special Economic Zones (SEZ) and Software Technology Parks (STP) in the current Indian Landscape

1. STPI and SEZ Schemes
for a GIC set up in India
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2. The Government of India introduced Special Economic Zone (“SEZ”) and Software Technology Parks of India
(“STPI”) schemes with the objective of providing internationally competitive and hassle free environment for
earning foreign exchange, attracting foreign direct investment, generation of employment in India.
This document analyzes the highlights and salient features of these schemes.
Special Economic Zone (“SEZ”) is a free trade zone approved by the Government where business and trade
laws differ from the rest of the country. The SEZ scheme envisages association of private sector with the
development of SEZ. The objectives of the zones include: increased trade, increased investment, job creation
and effective administration. The economic laws of a SEZ are more liberal than the country's typical
economic laws.
Software Technology Parks of India scheme (“STPI”) is a 100 percent export oriented scheme for the
development and export of computer software, including export of professional services using communication
links or physical media. This scheme focuses on one sector, i.e. computer software. The scheme integrates
the government concept of 100 percent Export Oriented Units (EOUs) and Export Processing Zones (EPZs)
and the concept of Science Parks/Technology Parks, as operating elsewhere in the world.
Highlights of STPI and SEZ scheme
The salient features and highlights of STPI and SEZ scheme are;
• Simplified procedures for setting up units and conducting business;
• Single window clearance for setting up of a unit;
• Duty free import on procurement of goods for setting up of a unit
• Exemption from customs duty on import of capital goods, spares, etc.,
• Exemption from Central Excise duty on the procurement of capital goods, raw materials, and
consumable spares, etc. from the domestic market
• 100% foreign equity is allowed to be invested in the units set up under this scheme
• The unit is permitted to realize and repatriate to India the full export value of goods or software
within a period of nine months from the date of export
• “Write-off” of unrealized export bills is permitted up to an annual limit of 5% of their average annual
realization
• External Commercial Borrowings up to $ 500 million a year allowed without any maturity restrictions
• Simplified Minimum Export Performance norms i.e., " Positive Net Foreign Exchange Earner"
• The sales in the Domestic Tariff Area (DTA) is permissible;

3. What are the obligations of an STPI/SEZ unit?
A unit set up under the STPI/SEZ scheme carries the following obligation;
• They have to be a positive net foreign exchange earner
• They have to execute a legal undertaking with the relevant jurisdictional authority
• They have to submit periodic reports to the jurisdictional authority - development commissioner or
director respectively
• The units will have to maintain proper accounting records to account clearly account for the fiscal
benefits availed by them
• They can sell the goods in domestic tariff area subject to payment of applicable duties and taxes
thereon
Distinction between SEZ and STPI scheme
The following comparative chart
Benefits SEZ STPI
Location
An SEZ unit can be set up only in
designated SEZ parks only
STPI units can be set up
anywhere in India
Lead time to set up SEZ is longer
Lead time to set up a STPI
unit is comparatively less
A SEZ unit cannot sub-lease the
surplus unless it is also the
”developer” of the SEZ park
Subject to removing all
bonded capital goods, an
STPI unit can sublease
the surplus office space
100% income tax exemption for
first five years and thereafter 50%
exemption for next five years and
thereafter 50% exemption for five
years in case or re-investment of
profits in terms of Section 10AA
of the Income Tax Act
The income tax exemption
has been withdrawn with
effect from April 2011
Goods for infrastructure
development cannot be
procured without payment
of applicable duties
STPI Unit is not eligible for
upfront exemption from
payment of service tax.
However, they are eligible
to take credit of service tax
paid on input services and
claim refund of tax so paid.
Based on prior experience,
the time lag to receive refund
of service tax paid is very
Goods for infrastructure
developmenti.e.,construction
material can be procured
without payment of duties
SEZ units are exempted from
payment of service tax in
respect of services, which are
exclusively used for authorized
operations. The service provider
names need to be registered
upfront with the Service Tax
authorities to claim exemption
Lead time to set up
Sub-leasing of surplus space
Income tax
Construction material
Service tax

4. high and in most of the cases,
authorities at lower level
dispute them.
STPI unit is not eligible for
upfront exemption from
payment of service tax.
They have to pay the
applicable taxes and claim
reimbursement of the taxes
so paid from the Government
SEZ unit is exempted from payment
of CST on goods procured
indigenously
Central Sales Tax (“CST”)
An STPI unit is eligible to sell
locally, subject to achieving
positive foreign exchange and
payment of full excise duty
equivalent of import duty
DTA sales are allowed subject to
payment of applicable duties
Local sales (“DTA Sales”)
A STPI unit is liable to reimburse
customs supervision charges
for staff deputed at the unit
A SEZ unit is not liable for payment of
payment of customs supervision
charges by staff deputed in the SEZ
park. The customs supervision charges
will be paid by the developer
Customs recovery charges
All goods imported by the STPI
unit should be physically
examined by the customs
officials unless they are given
specific permission for
self- certification
No routine examination of
exported/imported goods by
ustoms officials
Examination of goods
The state government is not
empowered to delegate the
powers of labor commissioner
to anyone
The state government are authorized to
treat the units in SEZ as public utilities
and accordingly delegate the powers of
labor commissioner to the development
commissioner of SEZ unit
Labor laws
STPI unit should convert 100%
of the export proceeds received
in convertible foreign exchange
to INR within 30 days from the
date of receipt
SEZ unit is permitted to retain 100%
of the export proceeds received in
convertible foreign exchange in
EEFC account
Maintenance of balance in
Exchange Earners Foreign
Currency Account (“EEFC”)
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5. Thank You
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