The current provision under Section 2(z) of the SEZ Act, 2005 mandates that proceeds for SEZ to DTA supplies of services must be realised in foreign exchange, although there is no such requirement in case of supply of goods to DTA entities.
“The SEZ Act requires realisation in foreign exchange for services supplied from SEZ to DTA. The idea is to align the definition of services with Goods and Services Tax law,” said an official, adding that this will require an amendment in the Act going ahead.
Work on the Cabinet note move comes amid industry seeking rupee-denominated payments for services, especially strategic services such as aerospace, defence, maintenance, repair and overhaul, and advanced engineering services, due to which Indian companies have to source such services from overseas. “Earning foreign exchange should only be required for international transactions, not for transactions between an SEZ and a DTA entity as both entities are situated in India,” the official added.
Industry has claimed that the prevailing SEZ conditions make such domestic service rendering difficult from being undertaken within these enclaves. Foreign companies take more than a year, whereas an Indian unit can complete the same work in a little over eight days, which increases transaction costs as a DTA entity has to buy foreign currency on payment of commission to the authorised dealer bank and then again the SEZ unit has to convert this foreign currency into rupees on commission to the bank, they said.
“The government has a policy of promoting Indian rupees and conserving foreign exchange. Also, this mismatch risks discouraging strategic defence service activities,” said an industry representative. The total exports from these zones have dipped to $133.45 billion in 2025-26 from $172.07 billion in 2024-25. There are 276 operational SEZs, with 6,695 units, in the country.