EOU vs SEZ : Understanding the Key Differences for Export-Focused Businesses in India.

India's ambition to become a global manufacturing and export hub is supported by various government-backed schemes. Among them, Export Oriented Units (EOUs) and Special Economic Zones (SEZs) stand out as two major policy frameworks designed to promote exports, attract foreign investment, and generate employment. While both schemes offer significant incentives, they differ in structure, benefits, and operational models. This article explores the key differences between EOUs and SEZ units to help businesses determine which route best suits their needs.

What are EOUs and SEZs?

Export Oriented Units (EOUs) are businesses set up with the objective of exporting their entire production. Introduced in 1981, EOUs can be established anywhere in India and are entitled to various duty exemptions and import benefits.

Special Economic Zones (SEZs) are specifically delineated industrial areas with a distinct legal and tax framework aimed at providing a globally competitive environment for exports. Units within an SEZ enjoy infrastructure benefits, tax holidays, and simplified compliance procedures.

Key Differences Between EOU and SEZ Units

Parameter	EOU	SEZ
Location	Can be set up anywhere in India	Must be within a notified SEZ zone
Government Authority	Development Commissioner & Customs Authorities	SEZ Authority & Development Commissioner
Income Tax Benefits	Available under Section 10B (phased out post-2011)	Available under Section 10AA – 100% for 5 years, then partial benefits
Duty Exemptions	Customs and excise duty exemptions on imported and domestic inputs	Exempt from customs duty, IGST, and other indirect taxes
GST Treatment	Supplies are taxable; input credit/refund available	Supplies are zero-rated under GST
Domestic Sales (DTA)	Allowed up to 50% of export value (FOB) with concessional duty	Treated as imports; full customs duty applies
Infrastructure	May lack integrated infrastructure; setup is independent	Plug-and-play infrastructure with common utilities and logistics support
Compliance Requirements	Requires bonded premises, detailed documentation, and regular reporting	Simplified compliance with single-window clearances

To further expand and explain these key differences, below is a detailed description:

1. Location and Setup

EOU : Can be set up anywhere in India, including rural or remote areas, giving businesses the freedom to choose based on logistics, resource availability, or cost-effectiveness.

SEZ : Units must be located within a notified SEZ, which offers built-in infrastructure, utilities, and logistical support. This can be advantageous for businesses that benefit from being part of an integrated ecosystem.

2. Governing Authority

EOU : Comes under the jurisdiction of the Development Commissioner and the jurisdictional customs authority.

SEZ : Regulated by the SEZ Authority and a designated Development Commissioner specific to each zone, often with a more streamlined single-window clearance system.

3. Imports and Procurement from DTA

EOU :

• Exemptions on customs duties for imported inputs and capital goods.

• Procurement from DTA qualify as 'Deemed Export supplies' i.e., such supplies will have to be made on payment of applicable GST of which the supplier / recipient EOU unit can take refund or the recipient EOU unit can take ITC

SEZ :

• Exemptions on customs duties for imported inputs and capital goods.

• DTA supplies will qualify as 'Zero rated supplies' i.e., the supplier has the option to make such supplies on payment of GST  of which he can either take refund or the recipient SEZ unit can take ITC.

4. Domestic Tariff Area (DTA) Sales

EOU : EOU is within the customs territory, but gets duty-free import benefits.

When EOUs sell goods in DTA:

• They charge GST (CGST + SGST or IGST), not customs duties.

• DTA buyers can take Input Tax Credit (ITC).

However, BCD exemption availed on imported inputs must be reversed.

• This is called duty foregone and has to be paid with interest.

No Bill of Entry is needed—just a GST Tax Invoice is sufficient.

GST is deposited by EOU; customs duty is paid only to the extent of earlier exemption.

SEZ : SEZ is treated as outside the customs territory of India. When goods are cleared from SEZ to DTA, it is treated like an import into India.

Hence, all applicable customs duties must be paid:

• BCD (Basic Customs Duty)

• SWS (Social Welfare Surcharge)

• IGST under Customs

A Bill of Entry is required (just like in a regular import).

5. Infrastructure and Ecosystem

EOU : Generally independent units that may not have access to integrated industrial infrastructure. This may require additional investment in utilities, logistics, and facilities.

SEZ : Designed as self-contained zones offering robust infrastructure, common facilities, uninterrupted utilities, and proximity to ports or transport hubs—ideal for large-scale export operations.

6. Compliance and Administration

EOU : Requires maintaining bonded premises, detailed documentation, and regular reporting to customs and development authorities.

SEZ : Offers simplified operational procedures with less frequent inspections and digitized compliance mechanisms, leading to ease of doing business.

Which is Better for Your Business?

The choice between an EOU and an SEZ unit depends on several factors, such as:

• The scale and nature of exports

• Preference for location flexibility

• Need for domestic market access

• Infrastructure requirements

• Appetite for compliance management

If your business thrives on autonomy, varied locations, and partial domestic sales, an EOU might be more appropriate. On the other hand, if you seek tax holidays, superior infrastructure, and long-term export commitments, establishing a unit within an SEZ can offer greater long-term value.

Conclusion

Both EOUs and SEZs play a pivotal role in strengthening India's export economy. Understanding the differences in benefits, procedures, and strategic implications can help businesses make informed decisions that align with their operational goals and market ambitions.