The Government of India has relaxed key provisions of the SEZ Rules, 2006 to encourage semiconductor and electronics manufacturing.

Changes in SEZ rules  

• Reduced Minimum Land Requirement:   
  • Old Rule: SEZs for semiconductors needed at least 50 hectares of contiguous land.  
  • New Rule: Now reduced to 10 hectares, making it easier for companies to set up smaller, cost-effective units.
• Relaxed “Encumbrance-Free” Land Condition:   
  • Old Rule: SEZ land had to be free of legal disputes or ownership claims.  
  • New Rule: The Board of Approval can now relax this condition, speeding up land acquisition and reducing delays.  
• Allowing Domestic Sales from SEZs:   
  • Old Rule: SEZs were export-only.  
  • New Rule: Semiconductor and electronics manufacturers can now sell in India.
• These changes aim to attract more investments, strengthen India’s semiconductor ecosystem, and reduce reliance on foreign supply chains.  

Special Economic Zones (SEZ)

• Special Economic Zones (SEZs) are designated areas within a country that have business and trade laws different from the rest of the country.
• The Special Economic Zones (SEZ) Act, 2005, and the SEZ Rules, 2006, were introduced in India to promote exports, attract foreign investment, and boost economic growth. 
• Objectives of SEZs:  
  • Boost exports (goods and services).  
  • Attract foreign direct investment (FDI).  
  • Generate employment opportunities.  
  • Develop infrastructure.  
  • Facilitate economic growth through a business-friendly environment.  
• Types of SEZs:  
  • Multi-product SEZ (large, diverse industries).  
  • Sector-specific SEZ (e.g., IT, biotech, gems & jewelry).  
  • Free Trade & Warehousing Zones (FTWZ) for logistics. 
• Key Features of the SEZ Act, 2005  and SEZ Rules 2006:
  • Legal Framework: Provides a stable policy environment for SEZs.  
  • Single-Window Clearance: Simplified approvals for SEZ developers and units.  
  • Tax Benefits:  
    • Income Tax Holiday: 100% tax exemption for first 5 years, 50% for next 5 years, and 50% reinvestment allowance for the following 5 years.  
    • Duty-Free Imports/Exports: No customs duty on imports or domestic procurement of goods for development, operation, and maintenance of SEZs.  
    • GST & Indirect Tax Benefits: Exemptions/exemptions under GST (earlier exemptions under central excise, VAT, etc.).  
  • Foreign Investment: 100% FDI allowed through the automatic route in most sectors.  

Key Challenges Faced by Special Economic Zones (SEZs)

• Sunset Clause (2020):  New SEZ units approved after April 2020 no longer enjoy income tax exemptions (existing units get benefits till 2027). It reduces attractiveness for investors.  
• Minimum Alternate Tax (MAT) & Dividend Distribution Tax (DDT):  Imposed in 2011, reducing tax benefits for SEZ developers & units.  
• High Land Costs: Minimum area requirements (e.g., 50+ hectares for multi-product SEZs) make projects expensive.  
• Delays in Land Acquisition:  Protests, litigation, and compensation disputes stall projects.  
• Global Slowdown & Competition:  Cheaper manufacturing hubs like Vietnam, Bangladesh, and China attract more FDI causing decline in export competitiveness  
• Limited Value Addition: Many SEZs focus on low-value assembly rather than high-tech manufacturing.  

Why Are Semiconductors Important?  

• Semiconductors are the backbone of modern electronics, powering devices like smartphones, computers, cars, and AI systems. 
• Over 35% of global semiconductor production comes from China, making supply chains vulnerable. 
• After COVID-19, countries like India are pushing for self-reliance in chip manufacturing to reduce dependence on imports.  

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