EOU and SEZ: Meaning, Difference Between SEZ and EOU, and Which One Should Exporters Choose?
Export incentives look great on paper—duty benefits, smoother procurement, better operating leverage.
But exporters discover the real bottleneck somewhere else: cashflow + compliance around receiving export payments.
So yes—EOU vs SEZ matters. But the right choice is the one that fits your ops and keeps your export cycle clean end-to-end.
TL;DR
- EOU (Export Oriented Unit): set up under India’s Foreign Trade Policy (FTP), Chapter 6—you can operate anywhere in India with export-linked benefits.
- SEZ (Special Economic Zone): set up inside a notified SEZ; for authorised operations, an SEZ is deemed outside India’s customs territory.
- Big differences: location + governing framework + customs/GST treatment + DTA sale mechanics + operational setup.
- Both require positive NFE tracked over a block period (commonly 5 years, starting from commencement).
Export Oriented Unit (EOU): Meaning (plain English)
An EOU is a manufacturing or service unit that operates under the EOU scheme in the Foreign Trade Policy—built to promote exports by giving duty/tax-linked benefits, in exchange for export performance and compliance.
EOUs work for:
- Goods exporters (textiles, engineering goods, gems, etc.)
- Service exporters (IT/ITES, software development, consulting, design)
And unlike SEZ units, an EOU is not restricted to a notified zone—your location can be chosen based on your business reality (factory, talent, suppliers, logistics).
Where does EOU law come from?
EOUs are governed primarily by:
- Foreign Trade Policy (FTP), Chapter 6 and the Handbook of Procedures
- Approvals and ongoing monitoring typically sit with the Development Commissioner / relevant authorities under the EOU framework.
Key EOU obligations exporters should actually understand
1) Positive Net Foreign Exchange (NFE)
The core commitment is positive NFE, computed cumulatively over a 5-year block (from commencement).
Translation: the forex you earn through exports must be higher than the forex you spend on imports (over the block).
2) The compliance rhythm
EOU compliance is mostly about proving you’re doing what you said you would:
- export performance tracking (APR/performance monitoring)
- import/procurement records
- stock/production and audit trails
It can feel heavy early on, but once your cadence is set, it becomes a repeatable monthly/quarterly routine.
DTA sales in EOU nuance—this is where many drafts get inaccurate.
- FTP allows DTA sales for certain categories (including finished goods, rejects, by-products, waste/scrap, etc.) subject to conditions and duties.
- For service EOUs (including software), the policy explicitly mentions DTA sale of services up to 50% of FOB value of exports and 50% of foreign exchange earned during the current year (as per the FTP text).
Practical takeaway: DTA permissions are real—but your exact entitlements are best validated against your LoP conditions + current FTP/HBP and DC guidance.
SEZ: Meaning in plain English
A Special Economic Zone (SEZ) is a notified zone governed by the SEZ Act, 2005 and SEZ Rules, 2006.
The defining idea is legal/tax treatment: for authorised operations, an SEZ is deemed to be territory outside the customs territory of India.
This is why SEZs tend to feel more “contained”: gate controls, specified officer processes, SEZ documentation, zone-level administration—because the framework is designed like an export enclave.
SEZ approvals (how it works)
Units in SEZ operate through approvals under the SEZ Rules framework, including Letter of Approval validity and DC administration.
Difference between SEZ and EOU (EOU vs SEZ) — at a glance
| Aspect | EOU (Export Oriented Unit) | SEZ (Special Economic Zone) |
| Where you can set up | Anywhere in India | Must be inside a notified SEZ |
| Law / framework | FTP (Chapter 6) + HBP | SEZ Act 2005 + SEZ Rules 2006 |
| Customs territory status | Part of India’s customs territory | Deemed outside customs territory (authorised ops) |
| GST treatment | Domestic procurement typically runs under normal GST flow; benefits work via export/refund mechanisms (not “GST-free by default”) | Supplies to SEZ are zero-rated under IGST Act |
| DTA sales | Permitted under FTP conditions; service/software units have explicit caps in FTP text | DTA sales treated like imports into India and attract duties as applicable |
| Infra model | Standalone—your premises, utilities, setup | Zone ecosystem + developer infra (often plug-and-play) |
| Compliance feel | FTP-linked returns + NFE discipline | Heavier zone processes + SEZ-specific documentation + customs interface |
GST & duties for SEZ vs EOU (clean explanation)
SEZ under GST (what “zero-rated” actually means)
Supplies to SEZ units for authorised operations are zero-rated under the IGST Act. In practice, this is designed to reduce working-capital lock-up compared to pay-and-refund flows (subject to documentation/endorsements).
EOU under GST (common mistake to avoid)
EOU ≠ “GST exempt”.
Under the EOU framework, domestic procurement can follow regular GST mechanics, and the benefit is not “no GST exists”—it’s that export-linked structures and scheme conditions support the unit’s export economics.
Mistake exporters make: treating EOU like SEZ for GST. They’re not the same regime.
EOU vs SEZ: which one should exporters choose?
Use this decision logic (simple, real-world):
Choose SEZ if:
- you want zone infrastructure + ecosystem
- your model benefits from the SEZ compliance structure and zero-rated supply setup (subject to process discipline)
Choose EOU if:
- you need location flexibility (existing factory/team footprint)
- you want an export scheme structure without relocating into a notified zone
If you expect meaningful domestic sales
Don’t pick based on “allowed/not allowed”—pick based on how duties/taxes apply and how frequently you’ll use DTA as a revenue line. SEZ DTA sales are treated like imports and duty incidence can be significant
Before you apply (quick checklist)
- Are you exporting goods, services, or both?
- How import-heavy is your model vs domestic procurement?
- What % of revenue could be DTA in 12–24 months?
- Do you have bandwidth for NFE tracking + audits + returns?
- Do your client contracts + invoicing flow align with the scheme’s operational reality?
EOU/SEZ benefits don’t matter if your export payments stay messy
You can optimise duties, get the right approvals, and maintain NFE.
But if your export payments arrive:
- late,
- with unclear timelines,
- and without clean documentation—
you still end up firefighting cashflow and compliance.
And the most frustrating part is: banks often don’t give receivers real-time clarity on incoming transfers. That creates operational drag exactly when you’re trying to run exports professionally.
Where Skydo fits (for exporters in EOU or SEZ setups)
Skydo doesn’t change your EOU/SEZ status—but it reduces the friction that makes export operations feel heavier than they should.
1) Real-time payment visibility (instead of chasing)
Skydo positions real-time tracking inside your dashboard so you can see payment status without forcing constant follow-ups.
2) Cleaner compliance trail (FIRA without the back-and-forth)
Skydo states that FIRA is generated automatically and is available from the dashboard.
3) Transparent fees + live FX (predictability matters in exports)
Skydo positions flat-fee pricing (instead of percentage skimming) and highlights no hidden FX markup on its materials.
4) RBI-authorised framework (trust layer)
Skydo has publicly announced receiving RBI authorisation as a PA-CB.
Bottom line: EOU vs SEZ decisions improve your export economics. But your export cycle only feels “smooth” when payments + tracking + documentation stop being a daily uncertainty.
If you want your next USD/EUR receipt to come with visibility + predictable fees + downloadable documentation, Skydo is worth evaluating alongside your existing setup.
