The Department of Commerce has prepared a cabinet note to propose some amendments in the definition of services under the Special Economic Zones (SEZ) Act, with a special focus on Engineer-to-Zero (E2Z) services, said sources aware of the matter. According to government officials, it has been proposed to broaden the definition of services under the SEZ Act and accordingly align it to the Goods and Services Tax (GST) framework and remove the long-standing requirement that the payment for service exports from SEZ units be done through foreign currency.
"The Cabinet note has been prepared proposing the amendments in the definition of the services under SEZ Act. We are hoping that soon the changes will be made in the Act, once it goes to the Parliament, " said the official.
The proposed amendment would modify the existing provision that mandates payment for services in foreign currency. Once the amendments are approved, service firms operating in SEZs would be allowed to receive payments in Indian rupees for services supplied to entities in the Domestic Tariff Area (DTA), a government official had previously told TNIE.
This move comes amid the broader effort by the government to revive the attractiveness of SEZs for service companies, particularly information technology and business services firms. Industry representatives from SEZ have been reaching out to the government requesting it to make the changes as they argued that the foreign exchange requirement is incompatible with India's expanding domestic digital economy, where SEZ-based firms increasingly cater to Indian clients.
The amendment is also expected to provide better clarity for E2Z, or Engineer-to-Zero, services. Within SEZs, E2Z refers to an internal process management methodology adopted by IT-enabled and business service companies to eliminate production defects and operational disruptions. It is distinct from government-notified commercial input services.
SEZ representatives have often flagged that in several cases, companies serving domestic clients have had to route payments through foreign currency merely to comply with the law, despite the transaction originating and ending in India. The proposed amendment seeks to eliminate such anomalies and bring the SEZ framework in line with current business practices and the GST regime.