The Centre is preparing an amendment to the SEZ Act, 2005 to broaden the definition of services by aligning it with the GST framework.
The proposed reform is expected to benefit IT and other service-sector units.
The amendment forms part of the government's wider SEZ reform agenda, which aims to improve ease of doing business, attract investments in sectors such as data centres, and enhance the competitiveness of India's Special Economic Zones.
Government Eyes Major SEZ Act Overhaul to Boost India's Services Sector
The proposed amendment aims to align the SEZ Act's definition of services with GST law, easing compliance for service-sector units and supporting investment in emerging industries.
FreePik
Summary
Advertisement
The Centre is working on an amendment to the Special Economic Zones (SEZ) Act, 2005 to expand the definition of "services", a move aimed at addressing operational challenges faced by service-sector units, particularly those dealing with transactions in Indian rupees, according to a report by Moneycontrol.
The proposed change seeks to modernise the law by aligning the definition of services under the SEZ Act with that under the Goods and Services Tax (GST) framework, reflecting the evolving nature of India's services economy.
Aligning SEZ Rules With Today's Business Environment
Under the existing SEZ Act, services are defined as tradable activities covered under the General Agreement on Trade in Services (GATS) that generate foreign exchange earnings.
While the law does not explicitly prohibit rupee-denominated transactions, the requirement that services earn foreign exchange has created compliance and operational hurdles for several businesses.
According to Moneycontrol, citing a senior government official, the Centre plans to replace this export-linked definition with the broader GST definition of services, which covers everything other than goods, money and securities.
Advertisement
The amendment will be limited to the SEZ Act and will not require changes to GST legislation or approval from the GST Council.
IT and Services Sector to Benefit
The proposed reform is expected to provide the biggest relief to IT and IT-enabled Services (IT/ITeS) companies, which account for a significant share of service-oriented SEZ units.
Industry bodies, including NASSCOM, have long argued that the current framework creates unnecessary complications for service exporters, especially in cases involving domestic transactions and payments received in Indian rupees.
Government officials also acknowledged that while several smaller IT companies have exited SEZs over the years, larger technology firms continue to operate from these zones. According to the Commerce Department, India currently has 276 operational SEZs.
Part of Wider SEZ Reform Agenda
The proposed amendment builds on the government's broader efforts to make SEZs more competitive and investment-friendly.
Advertisement
In the Union Budget for FY27, Finance Minister Nirmala Sitharaman announced a one-time relaxation for manufacturing units operating in SEZs, allowing eligible companies to sell a specified portion of their output in the Domestic Tariff Area (DTA) at concessional duty rates to improve capacity utilisation amid global trade disruptions.
The government is also looking to position SEZs as preferred destinations for emerging industries.
According to the report, officials expect sectors such as data centres and other technology-driven businesses to play a larger role in the next phase of SEZ-led investment and growth.