Getting a Letter of Approval is only the start. SEZ units must meet continuing obligations under the SEZ Act, 2005 and SEZ Rules, 2006, and failures often surface years later as show-cause notices, penalties or refusal to renew the Letter of Approval (LoA). This checklist covers what an SEZ unit should track.

1. Positive Net Foreign Exchange (NFE)

Under Rule 53, a unit must achieve positive Net Foreign Exchange cumulatively over a block of five years, counted from the commencement of production or services. Broadly, NFE is foreign exchange earned less foreign exchange outflow, calculated as the Rules prescribe. Sales into the Domestic Tariff Area (DTA) and certain outflows are treated differently from exports, so a unit that sells heavily in India can fall short even with large turnover. Failure to meet NFE can invite penal action under the Foreign Trade (Development and Regulation) Act, 1992.

2. Annual Performance Report (APR)

Every unit files an Annual Performance Report with the Development Commissioner (Rule 54). The Approval Committee uses the APR to monitor exports, imports, employment, NFE and BLUT cover. A late or incorrect APR is a common starting point of enforcement action.

3. LoA validity, extension and renewal

• Commence operations within the LoA period; seek extension in time if delayed. Extension beyond the early years requires higher approval.
• After five years of operation, apply for renewal well before expiry. The renewal is decided on export performance, employment and compliance record.
• Report changes in name, constitution or shareholding for approval.

4. BLUT adequacy

Review your Bond-cum-Legal Undertaking quarterly and furnish an additional bond if your scale of operations has grown. See our article on BLUT.

5. Customs, GST and foreign exchange filings

• Bills of Entry and Shipping Bills filed correctly, with goods used only for authorised operations;
• A separate GST registration for the SEZ unit, with returns, LUT for zero-rated supplies and refund claims filed on time;
• SOFTEX and realisation of export proceeds within the period allowed under FEMA for service and software units.

6. Income-tax position

The Section 10AA deduction under the Income-tax Act, 1961 applies only to units that commenced operations within the statutory sunset period (on or before 31 March 2020, with a limited extension for units that had LoA by that date). New units generally do not get the tax holiday, so projections and pricing must be on a fully taxable basis.

7. Lease and developer obligations

Pay rent, maintenance and other charges on time. Arrears under the lease can lead to notices, interest and, in extreme cases, termination and eviction proceedings by the developer or authority. Keep all correspondence in writing.

What if you receive a show-cause notice?

Do not ignore it. The Approval Committee must give you an opportunity of being heard. Prepare a reasoned reply with documents on NFE, APR and BLUT, and consider appeal or writ remedies if the order is unreasonable or ignores natural justice.

Need Guidance? Contact KC LEGAL

For more information or to discuss your matter with our advocates, call or WhatsApp +91 98311 90819, write to info@kclegal.us, or use our contact form. Our office is at Olisa House, 10th Floor, 4 Government Place, Kolkata 700001.

This article is for general information only and is not legal advice. Law and procedure change; please verify the current position for your specific case. Last reviewed: November 2026.