SEZs are the designated areas in a country that possess special economic regulations that are different from other areas in the same country. In India, The Special Economic Zones (SEZs) Policy was announced in April 2000 with a view to make SEZs an engine for economic growth with an emphasis on reducing regulations and hence promoting India as a favourable investment destination. The act aims to achieve this objective through promoting exports, encouraging domestic and foreign investments, generating employment and developing infrastructure facilities.

The policies and frameworks have so far been very encouraging to their development, such as the 10-year tax holiday in a block of the first 20 years, exemption from duties on all imports for project development, exemption from excise/VAT on domestic sourcing of capital goods for project development, no restrictions on repatriation, to name a few. However, the recently announced Direct Tax code has done away with the profit-linked deductions for SEZ units, which can significantly impact the development of SEZs.

Looking on the contribution made by SEZs toward exports, inflow of investment and employment, withdrawing the benefits of taxation from SEZ policy will make this policy almost ineffective and lose its charm.

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