The Centre has announced a one-time customs duty concession, allowing companies in special economic zones (SEZs) to sell goods in the domestic market at reduced rates of 6.5% to 15%, to help exporters make use of unused capacity amid uncertain global demand.
The relief has been granted under Section 25(1) of the Customs Act, 1962, and will come into effect from 1 April, remaining valid until 31 March 2027, according to a 31 March notification from the finance ministry.
Specified goods manufactured by SEZ units and cleared to the domestic tariff area (DTA) will attract concessional basic customs duty rates as per the detailed tariff tables, with exemption from the portion of duty exceeding the notified rates, subject to conditions, the notification said.
The notification also provides relief in certain cases on the Agriculture Infrastructure and Development Cess (AIDC), exempting the levy beyond the specified concessional rates.
The benefit will be available only to SEZ units that commenced production on or before 31 March, and such units will need to establish that the goods meet all prescribed conditions.
The concession will not apply to units operating in free trade and warehousing zones and will also exclude goods imported into SEZs and subsequently cleared into the domestic market without undergoing manufacturing.
Units availing the benefit will be subject to audit under Rule 79 of the SEZ Rules, 2006, according to the notification.
The concessional duty structure covers a wide range of products across sectors, including chemicals, plastics, textiles, metals and other manufactured goods, reflecting a broad-based relief measure for SEZ units.
“This one-time measure is a calibrated approach for concession to the SEZ unit with three interconnected pillars, each of which needs to be considered collectively and not on a standalone basis. The stated pillars are: (a) concessional rate of customs duty for clearances to DTA is available to eligible units subject to (b) cap of 30% of the export turnover and with (c) requirements of 20% value addition over inputs,” said a senior finance ministry official on the condition of anonymity.
The official added that the SEZ units do enjoy structural advantages such as duty-free inputs, certain tax benefits, and better infrastructure. Because of this, when they are allowed to sell in the domestic market, they may appear to compete on more favourable terms than DTA manufacturers.
“The duty is not meant to give SEZ units an advantage. Instead, it is based on the idea of equalization—that is, to adjust for the benefits SEZ units already enjoy. Even if the rate looks lower on paper, it is calibrated to broadly neutralize their cost advantage, so that goods entering the domestic market are not unfairly priced. The linkage with most favoured nation rates also helps ensure that the overall level of protection for the domestic industry is maintained,” the official added.
This duty mechanism does not work on its own, the official said, adding it is part of a larger control framework. “First, there is the cap of up to 30% of export turnover for domestic sales. This is very important because it prevents SEZ units from shifting their focus to the domestic market. Their main purpose remains exports, and domestic sales are only a limited support measure. This prevents any large-scale diversion of output that could disturb domestic markets,” the official said.
Policy flexibility
Trade experts said the move signals policy flexibility amid weak global demand but may have a limited impact. According to a brief by the Global Trade Research Initiative (GTRI), the duty concessions are modest—around one percentage point for many products—and there is no relief on integrated goods and services tax (IGST), which reduces the overall incentive for SEZ units.
The GTRI noted that while the scheme covers a wide range of products—from chemicals and fertilizers to textiles, footwear and machinery—key fuels such as petrol and diesel have been excluded, with only limited refinery products like petroleum coke included.
It also flagged that conditions such as minimum value addition requirements and caps on domestic sales could constrain flexibility, making the overall impact of the measure modest, said GTRI founder Ajay Srivastava.
Krishan Arora, partner and leader, indirect tax and India Investment Advisory at Grant Thornton Bharat, said the notification operationalizes the Union budget 2026 announcement of a one-time relaxation for SEZs to sell in the domestic market.
He noted that the move comes at a time when exporters are facing rising tariff barriers, geopolitical tensions and supply chain disruptions, and would help prevent underutilization of SEZ capacities by allowing units to pivot towards domestic demand.
The relaxation provides a cushion against external shocks while also benefiting the domestic industry by reducing reliance on imports that are becoming costlier and delayed amid global uncertainties, Arora said.
He added that the scheme is subject to conditions such as a minimum 20% value addition and a cap of 30% on domestic sales, and currently applies for 2026-27, though an extension may be needed if global uncertainties persist.
He further said the flexibility would help protect high-skill employment and ensure that manufacturing hubs remain operational despite weak external demand and ongoing geopolitical disruptions.
In the current environment of subdued external demand, this flexibility will enable units to better utilize capacity, support liquidity, and safeguard employment, while retaining their export orientation, said Chandrajit Banerjee, director general, CII.