A Special Economic Zone (SEZ) is a specifically demarcated area within India that offers businesses economic advantages such as tax exemptions, regulatory ease, and infrastructure support to promote trade, investment, and job creation.
Under the GST regime, SEZs are treated as territories outside the customs territory of India for supply purposes. Supplies made to or by SEZ units or developers are considered either zero-rated exports or exempt from GST, depending on the nature of the transaction. Check your business loan eligibility if you're planning to expand your business presence in an SEZ.
Treatment of supply to Special Economic Zone (SEZ) under GST
Here’s how supply to SEZs is treated under GST law:
- Zero-Rated Supply: Supplies made to SEZ developers or units are considered exports and thus zero-rated under Section 16 of the IGST Act.
- No GST Applicable: GST is not charged on such supplies if made under a valid Letter of Undertaking (LUT) or Bond.
- Eligible Input Tax Credit (ITC): Suppliers can claim a refund of ITC on inputs or input services used for such supplies.
- Deemed Export Benefits: In some cases, the supply may qualify for deemed export benefits if conditions are met.
- Recipient Must Be Authorised: The recipient in SEZ must be an authorised SEZ developer or unit to avail of tax exemptions.
Options for supplying to SEZ: LUT, bond, or IGST payment
| Mode of supply | GST impact | Eligibility/Condition |
|---|---|---|
| Supply under LUT | No GST charged; supplier can claim a refund of accumulated ITC | LUT must be filed with GST authorities |
| Supply under Bond | Similar to LUT; no GST charged; refund of ITC available | Bond needs to be furnished with a security if LUT is not filed |
| Supply with IGST Payment | GST is paid on supply; supplier can claim refund of IGST paid | Must report and file returns properly for refund processing |
Documentation and compliance for supply to SEZ
To ensure compliance while supplying to SEZ units or developers, businesses must follow these key steps:
- Valid SEZ Registration: Ensure the recipient is a recognised SEZ unit or developer.
- Letter of Undertaking (LUT) or Bond: Submit an LUT or Bond to avoid IGST payment.
- Tax Invoice: Mention “Supply meant for SEZ Unit/Developer under LUT/Bond without payment of tax” on the invoice.
- Bill of Export (for goods): Treated as export; hence, shipping documents and export declarations must be filed.
- Filing of GSTR-1 and GSTR-3B: Declare SEZ supplies accurately in GST returns to claim ITC refunds or IGST refunds.
- Supporting Documents: Maintain acknowledgments from SEZ recipients, delivery challans, and LUT/Bond approvals for audit purposes.
Conclusion
Understanding GST treatment for supplies to Special Economic Zones helps businesses remain compliant while maximising tax benefits. By choosing the right supply method—whether under LUT, Bond, or IGST—suppliers can make zero-rated supplies and claim timely refunds.
If you’re planning to expand your operations to an SEZ or enhance export capacity, consider applying for a business loan to scale efficiently and meet demand. Check your pre-approved business loan offer now to explore financing options tailored to your business needs.
