Where should a software export business sit – inside an SEZ, under the STP scheme, or as a plain DTA (domestic tariff area) exporter? Fifteen years ago the tax holidays made this a big decision. Today the honest answer is that the tax angle is dead for new units – the SEZ income-tax holiday sunset in 2020 and the STPI holiday in 2011 – so the choice turns on imports, infrastructure, compliance appetite and workforce flexibility. Here is the current comparison, without the stale promises.
The three regimes at a glance
| Factor | SEZ unit | STP unit | DTA exporter |
|---|---|---|---|
| Income-tax holiday | Only legacy units (commenced ≤ 31-Mar-2020) finishing their 10AA phases | None since 2011 | None |
| Import of capital goods | Duty-free + IGST-free for authorised operations | Duty-free + IGST-free (Customs Notification 52/2003 route) | Full customs duty + IGST (IGST creditable) |
| Domestic purchases | Zero-rated supplies to SEZ (supplier files LUT/refund) | GST paid, refund route available | GST paid, recovered through ITC + export refund |
| GST on your exports | Zero-rated for all three – export of services under LUT with ITC refund (see below) | ||
| Export obligation | Positive NFE over 5 years; annual reports to the DC | Positive NFE; monthly/quarterly/annual reports to STPI | None |
| SoftEx/EDF certifier | SEZ Development Commissioner | STPI Director | STPI via non-STP registration |
| Location | Notified SEZ processing area only | Anywhere (premises bonded) | Anywhere |
| Remote/hybrid work | Permitted under Rule 43A up to 31 Dec 2027 (intimation to DC) | No equivalent locational rule for services; duty-free assets tied to bonded premises | Fully flexible |
| Compliance weight | Heaviest – DC approvals, NFE, APRs, customs | Heavy – bonding (B-17), three report cycles, formal de-bonding exit | Lightest – GST LUT + SoftEx + FEMA realisation |
| Exit | DC-approved exit, duties on de-bonded assets | De-bonding with duty payment; NFE shortfall penalties | Nothing to exit |
Who should choose what in 2026
| Profile | Sensible home | Why |
|---|---|---|
| Services-only exporter – SaaS, development shop, GCC cost centre | DTA + non-STP registration | No hardware imports worth sheltering; lightest compliance; full workforce flexibility |
| Hardware-heavy operation (labs, chip design rigs, heavy compute on-prem) | STP unit – run the numbers | Duty + IGST-free imports can outweigh EOU compliance if the import bill is large and recurring |
| Large captive wanting SEZ-grade campus infrastructure | SEZ unit – for the real estate, not the tax | Grade-A campuses, DC single-window, hybrid-work window to end-2027; zero-rated procurement helps at scale |
| Legacy SEZ unit commenced before Apr 2020 | Stay and finish the 10AA phases | The 50% phases run into the early 2030s – exiting forfeits them |
| Startup that might pivot, relocate or go remote-first | DTA | Bonded premises and NFE obligations are the enemy of optionality |
The GST layer – common to all three
- Export of services is zero-rated: supplier in India, recipient and place of supply outside, consideration in convertible forex (INR where RBI permits), and the parties are not merely branches of one person – the test that matters for subsidiary-to-parent billing (a subsidiary is a separate person, so it qualifies; a branch does not);
- File the LUT (RFD-11) each financial year and export without charging IGST, claiming refund of unutilised ITC; or pay IGST and claim it back;
- Consideration not received within a year of invoice can trigger the tax + interest under the LUT rules – another reason the FEMA realisation discipline matters;
- EEFC account: exporters may hold 100% of forex earnings in a non-interest-bearing EEFC account, converting unspent balances to INR by the end of the following month – note SEZ units cannot open EEFC accounts.
What is changing around the schemes
- The DESH Bill (the would-be SEZ Act replacement) stalled; instead a government SEZ-reform committee was constituted in March 2026 – recommendations awaited;
- Rule 11B (Dec 2023) lets IT/ITeS SEZ buildings de-notify floor-wise for non-SEZ occupiers – easing the empty-space problem, with proportionate benefit repayment;
- Hybrid work for SEZ employees runs under Rule 43A to 31 December 2027;
- From 1 October 2026 the SoftEx/EDF machinery changes for everyone – see the SoftEx guide.
Choosing where to put your export unit?
We model the duty, GST and compliance math across SEZ, STP and DTA for your actual import and hiring plan – and set up whichever wins.
Talk to My Cloud AccountantFrequently asked questions
Do SEZ units still get a tax holiday in 2026?
Only legacy units that commenced operations by 31 March 2020 – they continue their remaining Section 10AA phases (50% of export profits in years 6–15). Units set up after the sunset get no income-tax deduction, though GST and customs benefits continue.
Is there any tax benefit to STPI registration?
No income-tax benefit since 31 March 2011. STP units get customs and IGST-free imports of capital goods; that is the entire fiscal case, and it only pays for import-heavy operations.
Can a DTA software company bill its foreign parent GST-free?
Yes – subsidiary-to-parent billing qualifies as export of services (separate legal persons), zero-rated under LUT with ITC refunds. A branch billing its own head office does not qualify – one reason the subsidiary beats the branch for cost centres.
Can SEZ employees still work from home?
Yes – the hybrid-work permission under Rule 43A was extended to 31 December 2027, covering IT/ITeS employees and others, with a simple email intimation to the Development Commissioner.
Based on the SEZ Act 2005 and Rules (as amended through the Fifth Amendment Rules 2024 and June 2025 amendments), Foreign Trade Policy 2023 Chapter 6, the IGST Act and current STPI schedules. Last reviewed: July 2026.