India is on the cusp of a manufacturing revolution, and at the heart of this transformation are its Special Economic Zones (SEZs). With the government rolling out game-changing reforms in June 2025, SEZs are poised to supercharge India’s ambitions in high-tech sectors like semiconductors and electronics. Imagine a future where India not only meets its domestic tech needs but also emerges as a global manufacturing hub, creating millions of jobs and driving economic growth. Sounds exciting, right? Let’s dive into the latest SEZ reforms, explore their impact, and uncover why they matter to every Indian dreaming of a self-reliant nation.

What Are SEZs, and Why Do They Matter?

Special Economic Zones are designated areas where businesses enjoy tax breaks, duty-free imports, and streamlined regulations to boost exports and attract investment.

India currently has over 270 operational Special Economic Zones (SEZs) spread across key states like Tamil Nadu, Gujarat, Karnataka, Maharashtra, and Andhra Pradesh.

Special Economic Zones are designated areas where businesses enjoy tax breaks, duty-free imports, and streamlined regulations to boost exports and attract investment. Introduced in 2000 and formalized under the SEZ Act, 2005, SEZs replaced older Export Processing Zones (EPZs), like the one in Kandla, established in 1965. As of March 31, 2024, India had 276 operational SEZs, employing 3.19 million people and exporting goods worth US$143.34 billion by January 31, 2025 (SEZ India).

India’s SEZs span diverse sectors, including IT/ITES, electronics, textiles, leather, pharmaceuticals, and now, semiconductors. Key SEZs include those in Noida (Uttar Pradesh) for IT, Sri City (Andhra Pradesh) for multi-sector manufacturing, and Cochin (Kerala) for electronics and gems. Tamil Nadu leads with 49 SEZs, contributing significantly to exports. Benefits of SEZs include tax holidays (e.g., 100% income tax exemption for the first five years), duty-free imports, single-window clearance, and world-class infrastructure like 24/7 power and logistics. These perks attract foreign and domestic investment, create jobs, and boost exports, making SEZs vital for economic growth and India’s global competitiveness.

SEZ Regulations In India

Introduced in 2000 and formalized under the SEZ Act, 2005, SEZs replaced older Export Processing Zones (EPZs), like the one in Kandla, established in 1965. As of March 31, 2024, India had 276 operational SEZs, employing 3.19 million people and exporting goods worth US$143.34 billion by January 31, 2025 (SEZ India).

SEZs are more than just industrial zones—they’re engines of economic growth. They create jobs, attract foreign direct investment (FDI), and build world-class infrastructure. But in a fast-changing global economy, India’s SEZs needed a reboot to stay competitive. Enter the 2025 SEZ reforms, designed to make India a powerhouse in high-tech manufacturing, especially in semiconductors—a sector critical to everything from smartphones to defense systems.

Key Reforms That Are Changing the SEZ Game

Here’s a closer look at what’s changed for SEZ in India:

1. Land Requirements Relaxed

Earlier, developers had to acquire at least 50 to 100 hectares of contiguous land to set up an SEZ. This threshold created major entry barriers, especially for smaller players.

But now for semiconductor and electronics SEZs, the minimum requirement is down to just 10 hectares. Also for IT/ITeS SEZs, only 4 hectares are needed — a massive boost for startups and MSMEs as they can now enter the market without massive capital. It wouldn’t be wriong Think of it like building micro-factories instead of industrial cities.

2. Financial Flexibility - Encumbered Land Now Permitted

Earlier, SEZ developers had to show that the land was fully “encumbrance-free” — meaning not mortgaged or under litigation. This condition delayed projects and created legal complications.

Now, developers can use encumbered land, provided it’s under government lease or institutional lending — opening doors to faster development cycles.

3. Domestic Market Access & Sales Revolution : A Game-Changer

Previously, goods made in SEZs had to be exported. If they were sold in India’s Domestic Tariff Area (DTA), developers had to wade through duties and compliance layers.

With the new reforms:

• With Rule 18 - SEZ units, especially in semiconductors and electronics, can now sell in DTA after paying applicable duties.
• This significantly enhances ease of doing business, improves inventory turnover, and reduces wastage.

4. Free-of-Cost Imports Now Accounted in NFE

For industries like defense repair, aviation leasing, and electronics reconditioning, it’s common for goods to be imported free-of-cost and exported after repair.

India’s new rule now includes free-of-cost imports in Net Foreign Exchange (NFE) computations — making compliance clearer and fairer.

This especially benefits aerospace, drone startups, and defense MROs (Maintenance, Repair & Overhaul), which operate on international service models.

5. Broader Tech Definition

The policy now covers:

5. Aircraft and Ship Leasing Permitted

The definition of SEZ services has been expanded to include both aircraft and ship leasing. India’s defense modernization plans — especially for indigenous shipbuilding and naval aviation — directly benefit from this.

Companies setting up SEZ units for leasing military or commercial assets now have:

• Tax exemptions on leasing revenues.
• Simplified entry rules into the aerospace supply chain.

📍 Amended under Rule 21B – March 2024 SEZ Rules.

Real Impact: On-Ground Projects

These rule changes aren’t theoretical. They’ve already led to real projects:

What It Means for India’s Defense Future

These reforms under the special economic zone act go far beyond just infrastructure. They directly support India’s growing defense ambitions:

• iDEX and Make in India – Defense initiatives need chipsets, avionics, and components.
• SEZs now offer ideal conditions for startups and defense-tech firms to manufacture or assemble for DRDO, HAL, or private defense orders.
• With relaxed norms, companies can now create end-to-end production lines inside a special economic zone without being locked into only export contracts.

By the Numbers

• 270+ operational SEZs across India (as of 2024)
• ₹9.8 lakh crore worth of exports from SEZs in FY2023–24
• Tamil Nadu added 7 new SEZs in 3 years
• Electronics exports from SEZs grew 42% YoY in 2024

Challenges to Watch

No reform is perfect, and SEZs face hurdles:

• Policy Instability: Frequent changes can spook investors. Consistency is key.
• Infrastructure Gaps: While Tamil Nadu shines, other states need better logistics and connectivity.
• WTO Compliance: Export subsidies in SEZs are under scrutiny. Allowing domestic sales helps, but India must navigate global trade rules carefully.
• Land Concerns: Critics worry about fertile land being repurposed and revenue leakage if domestic firms shift to SEZs for tax benefits.

Policymakers should focus on transparent land acquisition and robust infrastructure to sustain investor trust. For businesses, partnering with state governments can mitigate risks.

Why It Matters for Entrepreneurs & Investors

If you’re in manufacturing, defense, electronics, or IT, these reforms are your green light:

✅ Set up a compact, compliant special economic zone unit in your state.
✅ Sell within India without losing tax benefits.
✅ Tap into global export markets with support from state & central governments.
✅ Access better land deals, tax breaks, and logistics benefits with a SEZ license.

Tamil Nadu: The SEZ Case Study

While national reforms set the stage, states like Tamil Nadu are stealing the show. With 49 operational SEZs spanning 12,395 acres, Tamil Nadu has attracted ₹1.5 lakh crore in investments and employs 8.5 lakh people. In 2024-25, its SEZ exports hit $10 billion (Times of India).

What’s Tamil Nadu doing right? It’s all about plug-and-play infrastructure—think 24/7 power, water recycling, and ready-to-use facilities. Add to that a single-window clearance system and incentives like capital subsidies under the Tamil Nadu Industrial Policy, 2021. Sectors like IT/ITES, electronics, and leather thrive here, showing how state-level support can amplify national reforms.

Actionable Insight: If you’re an entrepreneur eyeing SEZs, Tamil Nadu’s streamlined processes and infrastructure make it a top choice. Start by exploring opportunities on the state’s Guidance Tamil Nadu portal.

Final Thoughts

The reforms to the special economic zone in India mark a clear policy shift — from large, export-only models to flexible, tech-driven industrial zones.

If India is to realize its vision of becoming a manufacturing and defense superpower, the SEZ ecosystem needs to support innovation, scale, and strategic autonomy. These reforms signal that we’re finally heading in the right direction.

Frequently Asked Question (FAQs)

Q1. What is a special economic zone in India?
A special economic zone (SEZ) is a designated area offering tax breaks, duty-free imports, and single-window clearances to boost export-oriented industry.

Q2. How has the special economic zone act changed in 2025?
Recent amendments to the special economic zone act cut minimum land from 50–100 ha to 4–10 ha, allow encumbered land, and permit domestic sales with duty.

Q3. Which sectors gain most from the new SEZ reforms?
Semiconductors, electronics, defense manufacturing, IT/ITeS, and aircraft or ship leasing stand to benefit the most.

Q4. What tax benefits do companies get inside an SEZ?
Units enjoy 100 % income-tax exemption for the first 5 years, customs-duty exemptions on capital goods and raw materials, and faster GST refunds.

Q5. Can SEZ units now sell in India’s domestic market?
Yes. Under the 2025 rules, SEZ units—especially in electronics and defense—may sell in the Domestic Tariff Area after paying applicable customs duties.