A recent policy move allowing SEZ units to sell into the domestic market at concessional duty rates offers limited relief, with industry experts flagging compliance hurdles, structural gaps, and restricted applicability.
The government’s one-time relaxation for Special Economic Zone (SEZ) units, notified on March 31, 2026, opens a controlled window for selling goods into the Domestic Tariff Area (DTA) at concessional Basic Customs Duty (BCD). The move comes at a time when electronics manufacturers are dealing with elevated input costs, supply chain disruptions, and increasing tariff pressures. While positioned as a relief measure, its actual impact on the sector remains limited.
Basic customs duty have been partially reduced for key electronics categories such as 8501, 8502, 8508 and 8517. Concessional rates in the range of 6.5% to 12.5% offer a little cost advantage compared to peak duties of up to 25%. However, the benefit remains narrow.
Once additional levies such as IGST and Social Welfare Surcharge (SWS) are applied, the effective duty outflow remains significant, reducing the attractiveness of the scheme.
This is particularly relevant for an industry that operates on thin margins and depends heavily on imported components. In many cases, the duty savings under the relaxation may not be sufficient to offset broader cost pressures, especially when logistics and compliance costs are factored in.
The design of the scheme further limits its usability by applying strictly to goods manufactured within SEZs, excluding trading units, Free Trade Warehousing Zones (FTWZs), and repair operations. Additionally, products already under lower duty slabs or those falling in higher peak duty categories are not covered. This selective applicability reduces the number of companies that can meaningfully benefit from the policy.
Industry inputs suggest that the eligibility conditions attached to the relaxation further restrict its effectiveness. Units must meet a minimum value addition threshold, which may not be feasible across all product categories, particularly in electronics where import dependence remains high. At the same time, domestic sales are capped as a proportion of past export performance, limiting the scale at which companies can tap into the domestic market.
For export-heavy units, this cap restricts flexibility, while for smaller players, it reduces the incentive to divert production for domestic sales. The result is a scheme that offers relief in principle but remains constrained in execution.
Compliance requirements
Operational complexity is emerging as a key concern. Units are required to file Bills of Entry, undergo assessment by the proper officer, and obtain certification from the jurisdictional Development Commissioner. These steps introduce additional procedural layers and increase the likelihood of scrutiny.
“There is relief on paper, but once other duties and conditions are applied, the net benefit becomes limited,” said Ratan Jain, Executive Partner, LKS, pointing to the overall duty structure. On this, Nupur Maheshwari, Executive Partner, LKS, noted that the restrictive conditions and procedural requirements could make it difficult for many units to fully leverage the scheme.
Beyond procedural steps, the lack of clarity in implementation is adding to industry concerns. Several grey areas persist, including how export values should be calculated for multi-product units, whether certification is required for each clearance, and how limits are to be interpreted in complex scenarios such as deemed exports or returned goods.
There is also uncertainty around the applicability of interest and penalties. In the absence of explicit provisions within the SEZ framework for such cases, differing interpretations by authorities could lead to disputes and litigation, increasing compliance risk for units.
From a competitiveness standpoint, the scheme also faces structural limitations. Imports under Free Trade Agreements (FTAs), which often attract zero duty, may remain more viable than this scheme. This reduces the relative advantage of domestic manufacturing under SEZs, especially in categories where global supply chains are already optimised for cost efficiency.
Industry stakeholders believe that while the relaxation signals intent, it does not address deeper structural challenges. Key demands include broader product coverage, reduction in additional duty components, extension of the scheme beyond its current timeframe, and clearer operational guidelines to reduce compliance burden.
Without these changes, the policy risks remaining a short-term measure with limited real-world impact.
Overall, the one-time relaxation brings some flexibility for SEZ units, but stops short of delivering meaningful cost relief for the electronics industry. Its success will depend on how quickly the government addresses implementation gaps, simplifies compliance processes, and aligns the scheme with the realities of electronics manufacturing in India.
Based on insights shared during an industry webinar hosted by ELCINA in collaboration with Lakshmikumaran & Sridharan, along with additional reporting and analysis by EFY Senior Journalist Pratyush Kumar.
