Union Budget 2026: SEZs Granted Domestic Market Access with Reduced Duties

The Union Budget 2026 proposes targeted changes to the SEZ framework to support exporters, improve capacity utilisation, and protect jobs at a time of global trade uncertainty. 

Budget Proposal and Domestic Sales by SEZs 

The Union Budget has allowed SEZs (Special Economic Zones) to sell in the domestic market at lower duties. As per CNBC-TV18 report, operational details for the scheme will be worked out over the next few months.  

The budgetary proposal outlines a special one-time measure permitting eligible manufacturing units in SEZs to sell to the Domestic Tariff Area (DTA) at concessional duty, subject to limits linked to a prescribed proportion of their exports.  

Rationale, Safeguards and Investment Impact 

The proposal aims to utilise idle capacity within SEZs to generate employment, encourage capacity expansion, and attract fresh investment, while retaining the requirement for SEZs to remain NFE-positive for 5 years and allowing reverse job work.  

Many firms currently find imports from overseas facilities cheaper than sourcing from Indian SEZs, and the measure would help reverse this trend. Similar duty-foregone domestic sales are already permitted in several countries with successful SEZ models. 

Legislative Background and Policy Debates 

Earlier, the DESH Bill had been shelved, with most of its provisions absorbed into the SEZ Amendment Bill, alongside proposed changes to SEZ rules and subordinate legislation to address immediate concerns. Investor interest in SEZs had weakened after the withdrawal of direct tax incentives, prompting the government to explore alternative support measures.  

Discussions on the DESH Bill in 2022 involved the Ministry of Commerce & Industry and the Department of Revenue attempting to resolve tax-related differences, including demands to drop corporate tax concessions.  

The Finance Ministry had also objected to extending the 15% corporate tax rate till 2032. While export-boosting reforms were considered, proposals to exempt SEZs from NFE evaluation criteria faced opposition from the Finance Ministry and NITI Aayog. 

Read More: Union Budget 2026-27 Sets ₹80,000 Crore Divestment and Monetisation Target! 

Conclusion  

The proposed SEZ reforms aim to balance export support with domestic market safeguards. By allowing limited duty-concessional sales, the government seeks to revive underutilised capacity, protect employment, attract investment, and offset global trade headwinds without harming domestic manufacturers or fiscal stability. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.  

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.