India's Special Economic Zones (SEZs) are duty-free enclaves that are treated as foreign territory for trade operations, duties and tariffs. For exporters, service providers and foreign investors, an SEZ unit can offer significant operational advantages. But the approval route is formal and document-heavy, and mistakes at the start can cost months. This guide explains how a unit is set up in an SEZ under the Special Economic Zones Act, 2005 and the SEZ Rules, 2006.

1. Understand the legal framework

SEZs are governed by the SEZ Act, 2005 and the SEZ Rules, 2006, both in force since 10 February 2006. Every zone is headed by a Development Commissioner (DC), and an Approval Committee chaired by the DC clears unit proposals. Central Government zones such as the Falta SEZ near Kolkata, which has jurisdiction over West Bengal and the eastern and north-eastern states, work under the same Act and Rules as private and state-promoted zones.

2. Choose the right zone and secure space

Your first step is commercial: select the SEZ (sector-specific or multi-product), and obtain a letter of willingness to allot space from the zone authority or private developer. Check the land title, the lease terms and the zone's notified sectors before you commit. The lease deed will later be a condition of your approval.

3. Prepare the unit proposal (Form F)

A consolidated proposal is filed in Form F with the Development Commissioner, through the SEZ Online system. Typical documents include:

• Project report with the list of capital goods, projected exports and employment;
• Constitutional documents of the applicant (certificate of incorporation, MoA/AoA or LLP deed) and a board resolution;
• PAN, Importer-Exporter Code (IEC) and other statutory identifiers;
• Letter of willingness or allotment of space from the developer;
• The affidavit and undertakings prescribed in Form F, on stamp paper where required.

4. Approval Committee scrutiny (Rule 18)

The Approval Committee examines the proposal against the criteria in Rule 18, including the project's economic viability, the proposed net foreign exchange earnings, employment and the credentials of the promoters. The applicant may be called to explain deficiencies, and a rejection can only follow an opportunity of being heard.

5. Letter of Approval (Form G)

On approval, the DC issues a Letter of Approval (LoA) in Form G under Rule 19. The LoA specifies the authorised operations, the products or services, and conditions. A unit generally has to commence operations within the initial LoA period; extensions are possible in stages, with the Development Commissioner and ultimately the Board of Approval deciding. After five years of operation, the LoA is renewed on evaluation of the unit's performance, and the renewal application must be filed well before expiry.

6. Execute the lease deed and Bond-cum-Legal Undertaking

The unit executes a registered lease deed with the developer or zone authority (read the clauses on rent, arrears, transfer and termination carefully) and furnishes a Bond-cum-Legal Undertaking (BLUT) in Form H covering duties on duty-free imports and domestic procurement. See our separate article on BLUT for the details.

7. Register with Customs and commence operations

Before the first import or export, the unit gets its Customs and SEZ Online registrations in place, opens the required bank accounts, obtains a separate GST registration for the SEZ unit and begins authorised operations. Service units also complete the software-export procedures where applicable.

Common mistakes to avoid

• Applying without a registered lease or with an unclear land title;
• Understating capital goods or over-projecting exports, which later affects net foreign exchange compliance;
• Missing the LoA validity or lease-deed submission deadlines;
• Assuming a new unit still gets the Section 10AA income-tax holiday. That benefit closed to units commencing after the statutory sunset date.

Frequently asked questions

Can a foreign company set up an SEZ unit? Yes. A foreign company or Indian entity with foreign investment can apply, subject to the FDI policy and FEMA compliance for its sector.

Who approves the unit? The Approval Committee of the zone, chaired by the Development Commissioner.

Is a lawyer required? Not mandatory, but drafting the proposal, the lease deed and the BLUT correctly avoids costly delays and later disputes with the developer or authority.

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.