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One of the first questions businesses face while establishing a Global Capability Center (GCC) in India is whether an SEZ or a Non-SEZ location is the better fit. However, that question alone doesn't tell the whole story. Choosing between a Special Economic Zone and a non-SEZ (Domestic Tariff Area) setup also influences where you operate, how easily you can access talent, the compliance obligations you manage, and the flexibility you have as the business grows. Although both paths lead to a functioning GCC, they do not lead to the same GCC.
SEZ units get preferential tax treatment and streamlined customs handling, but only within defined zones and only if they can sustain export-oriented obligations. Non-SEZ units give up that tax edge in exchange for freedom. They can operate from any city, have any client mix, and have no zone-bound compliance calendar. The better fit depends less on today's tax arbitrage and more on your company's stage and growth plan. It also depends on how tightly export revenue defines your business.
Quick-Answer Comparison
Before going into detail, here's how the two models stack up on the factors that actually move a decision.
| Parameter | SEZ | Non-SEZ (DTA) |
|---|---|---|
|
Income tax incentive |
Section 10AA holiday, largely closed to units commencing after April 2020; legacy units still riding out the sunset schedule | Standard rate — a 22% base rate (about 25.17% effective, including 10% surcharge and 4% cess) under Section 115BAA of the Income-tax Act, 1961 (re-enacted as Section 200 of the Income-tax Act, 2025), for eligible companies, with no location-linked exemption |
| GST and customs | Zero-rated supplies, duty-free imports for authorized operations | Standard GST applies, input tax credit available on procurement |
| Location flexibility | Confined to notified SEZ zones | Any city in India, including tier-2 and tier-3 hubs |
| Exit and de-notification | Complex, tied to Net Foreign Exchange history and duty-paid asset transfer | Standard winding-up or strike-off under the Companies Act |
| Work-from-home | Once tightly capped, now considerably eased under the 2022 SEZ Rules amendments | That changed with amendments to Rule 43A, which moved SEZs to an intimation-based system and extended hybrid working to cover all employees of IT and ITeS units, subject to the applicable conditions. It's a significantly different environment than it was three years ago — though the 100% relaxation was initially time-bound (permitted up to December 31, 2023) and has been revisited since, so current eligibility should be reconfirmed, and SEZ units still carry recordkeeping obligations non-SEZ employers never have to think about. |
| Access to talent | Limited largely to SEZ-adjacent micro-markets | Full reach into tier-2 talent pools |
| Compliance load | Heavier, with SEZ-specific filings and Development Commissioner approvals | Standard ROC, tax, and labor filings |
Deep-Dive Section A: Tax Incentives - What's Actually Left
The income tax holiday isn't available to everyone
Here's where a lot of GCC teams operate on outdated assumptions. Section 10AA once offered SEZ units a full income tax exemption on export profits for five years, stepping down to a partial exemption for the next several years after that. The catch, one that trips up more companies than it should, is the sunset clause. Units that commenced operations after April 1, 2020, generally cannot claim this benefit at all. If your GCC is being set up today, verifying current eligibility with a tax advisor isn't optional homework, it's the first decision gate.
How GST benefits work in reality
The GST side works in a different way. Supplies into an SEZ are treated as zero-rated exports, and domestic suppliers can bill without charging GST under a Letter of Undertaking. That removes GST drag on procurement entirely for the SEZ unit, provided the underlying Net Foreign Exchange position stays positive over each rolling block.
When a Non-SEZ setup can work better
Under Section 200, companies can opt into a concessional corporate tax rate without location conditions attached. For GCCs that expect to serve Indian clients along with global ones, or that simply want tax certainty without an expiring holiday, this often nets out more favorably once you weigh compliance costs against the shrinking SEZ benefit.
Deep-Dive Section B: Operational Restrictions
Work-from-home rules have evolved
Work-from-home used to be one of the genuine drawbacks of the SEZ model. Before the December 2022 amendment, SEZ units could extend remote work to only half their workforce, and only with prior approval from the Development Commissioner. That changed with amendments to Rule 43A, which moved SEZs to an intimation-based system and opened remote work to the full workforce for IT and ITeS units. It's a significantly different environment than it was three years ago, though it still comes with recordkeeping obligations non-SEZ employers never have to think about.
Domestic business comes with additional conditions
The SEZ model still presents some concerns when it comes to domestic sales. Selling into the Indian market from an SEZ unit is treated as an import into the DTA, triggering customs duty and IGST on that revenue. For a GCC that expects to pick up local clients over time, this structure actually closes a door.
Infrastructure choices matter
The physical reality of SEZ campuses, often built-to-suit with multi-year lock-ins, makes the picture less about tax and more about long-term commitment to a specific geography and client mix.
Talent availability can influence the decision
Talent demographics matter just as much. SEZ zones cluster around a handful of established hubs. Non-SEZ setups let a company chase talent into tier-2 cities where competition for experienced hires is lighter, and retention economics look better.
Deep-Dive Section C: The Exit Problem
SEZ exit is where the model's flexibility gap shows up hardest. De-notifying an SEZ unit means demonstrating a clean NFE compliance history, repaying duty benefits claimed on retained assets, and working through a formal approval process with the Development Commissioner. Realistically, this stretches twelve to eighteen months, not a line item to gloss over in a board deck. Non-SEZ exit, in contrast, follows the standard company winding-up route under the Companies Act, a process most finance teams can plan around with confidence.
Matching the Model to Company Stage
| Company Profile | Likely Better Fit |
|---|---|
| Large-scale, export-only GCC, 500+ headcount, long horizon | SEZ, or a hybrid structure if incentives remain material |
| Talent-first strategy, tier-2 hiring priority | Non-SEZ |
| Hybrid or flexible work as a retention lever | Non-SEZ |
| Testing India before committing to scale | Non-SEZ, given lower exit friction |
Where Xpansa Fits In
Neither model is inherently right for every organization. The SEZ path still makes sense for genuinely export-heavy, long-horizon operations that can sustain NFE compliance without strain. The non-SEZ path suits companies that prioritize talent access, market flexibility, or an easier way to test India before going all in. What matters is matching the structure to the position where your GCC will actually be in three to five years, not just where the tax equation looks best when you get started.
At Xpansa, we work through this decision alongside GCC leadership teams, from structuring the entity and liaising on SEZ approvals to setting up a non-SEZ operation built for flexibility from the outset. If you're weighing this decision for your own India build-out, we're glad to walk through the trade-offs specific to your business.
With extensive expertise in business operations, talent development, and cross-border collaboration, Ms. Poornima helps organizations build high-impact global capability centers. Connect with her on LinkedIn to discover how structured operations drive global success.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
