QCO Exemption Extended to SEZ Units and Developers under FTP 2023 Amendments

June 9, 2026 Posted by India Briefing Written by Archana Rao Reading Time: 5 minutes

India has expanded QCO exemptions for SEZ imports. The latest FTP framework allows units and developers in SEZs to import a wider range of goods without mandatory BIS compliance at the import stage.

The Directorate General of Foreign Trade (DGFT) has amended the Foreign Trade Policy (FTP) 2023 to clarify the applicability of mandatory Quality Control Orders (QCOs) issued under the Bureau of Indian Standards (BIS) Act, 2016, to imports made by units and developers operating in Special Economic Zones (SEZs).

Through Notification No. 20/2026-27 dated June 3, 2026, the central government revised Paragraph 2.03A(iii) of the FTP 2023. This latest amendment broadens the exemption from mandatory QCO compliance for imports undertaken by SEZ units and developers. It also brings the FTP framework into closer alignment with the provisions of the SEZ Act, 2005, and the SEZ Rules, 2006.

Understanding QCOs and import exemptions for SEZ

QCOs are mandatory product quality regulations issued by various ministries and departments under the BIS Act, 2016. Products covered by QCOs must conform to prescribed Indian standards. In addition, applicants must obtain BIS certification before they can be manufactured, imported, sold, or distributed in India.

To facilitate exports and support export-oriented business models, the FTP provides exemptions from mandatory QCO compliance for imports made under specified export promotion schemes.

Learn more about customs and trade regulatory requirements before you start importing

Paragraph 2.03A of the FTP contains provisions covering:

Advance authorization (AA) holders who import inputs for manufacturing export products
Export-Oriented Units (EOUs), which undertake export-focused production activities
Special economic zones (SEZs) units and developers, which import goods for authorized operations within SEZs

These exemptions recognize that certain imported goods are intended for export production or approved activities within designated economic zones and are therefore subject to a different regulatory treatment than products entering the domestic market.

Previous QCO exemption framework for SEZs in India

Before the June 2026 amendment, SEZ units in India could import inputs required for export production without complying with mandatory QCO requirements. However, the provision applied within a relatively narrow framework and imposed several restrictions on the use of imported goods.

Planning export-oriented manufacturing in India? Our advisors can help structure efficient operations.

The exemption primarily covered inputs used to manufacture export products. SEZ units had to physically export the finished products manufactured from such inputs, and they could not clear either the imported inputs or the resulting products into India’s Domestic Tariff Area (DTA). At the time of import, SEZ units also had to submit an undertaking to the concerned Development Commissioner confirming compliance with these conditions.

Although the provision supported export activities, it did not explicitly cover several categories of goods that businesses routinely use in SEZ operations, including capital equipment, machinery, spare parts, and operational consumables. As a result, businesses often faced uncertainty regarding the extent of the available exemption.

CLICK HERE: A Guide to India’s Special Economic Zones

What has changed under the revised FTP provision

The revised Paragraph 2.03A(iii) expands the QCO exemption available to SEZ units and developers.

Under the amended framework, SEZ units and SEZ developers can import all permissible goods required for authorized operations without complying with mandatory QCO requirements at the time of import. The revised provision extends the exemption to a broader range of goods.

QCO Exemptions for SEZ Imports
Aspect	Earlier FTP provision	Revised FTP provision
Eligible beneficiaries	SEZ units	SEZ units and SEZ developers
Scope of exemption	Inputs required for export production	All permissible goods required for authorized operations
Raw materials	Covered	Covered
Components, consumables, spare parts and capital goods	Not expressly covered	Explicitly covered
Basis of exemption	Export production	Authorized operations
DTA treatment	Clearance prohibited under FTP wording	Movements subject to QCO, BIS, and other applicable laws
Policy basis	FTP-specific exemption	Aligned with SEZ Act and SEZ Rules

Another important change is the explicit inclusion of SEZ developers as eligible beneficiaries. While the earlier provision referred only to SEZ units, the revised framework extends the exemption to both SEZ units and SEZ developers importing goods required for authorized operations within the zone.

Conditions attached to the exemption

While the amendment expands the scope of eligible imports, it continues to maintain important compliance safeguards.

SEZ units and developers must use imported goods exclusively for authorized operations within the SEZ in accordance with the SEZ Act and the SEZ Rules. At the time of importation, the importer must submit an undertaking to the concerned Development Commissioner confirming that it will use the imported goods in compliance with applicable legal requirements.

Our business advisory teams support companies with end-to-end import clearance needs & market regulatory needs pan Asia

The amendment also clearly defines the treatment of goods that move into the domestic market. If an SEZ unit transfers, removes, or clears imported goods, or products manufactured or processed from those goods, into the DTA, the business must comply with all applicable QCOs, BIS certification requirements, and any other laws or regulations in force at the time of clearance.

How SEZ treatment differs from other FTP schemes

Paragraph 2.03A of the FTP also grants QCO exemptions for imports made under the Advance Authorization and EOU schemes. However, these exemptions operate under a more restrictive framework than the revised SEZ provisions.

Under the AA scheme, businesses can import inputs without complying with QCO requirements only when they use those inputs to manufacture products for export under the same authorization. The authorization holder must satisfy the pre-import condition and obtain a specific endorsement for the exemption on the authorization. If imported materials remain unutilized, the business generally cannot transfer them into the domestic market. Instead, it must re-export, destroy, or otherwise regularize those materials in accordance with FTP requirements.

Similarly, EOUs can import inputs required for export production without complying with QCO requirements. However, they must use those imports for export-oriented manufacturing, and they generally cannot clear either the imported inputs or products manufactured from those inputs into the domestic market without meeting applicable regulatory requirements.

Practical implications for businesses in India’s SEZ

The amendment is likely to reduce compliance burdens by removing uncertainty surrounding the import of operational goods and capital equipment. This is expected to benefit SEZ-based manufacturers, service providers, logistics operators, infrastructure developers, and technology companies.

SEZ businesses can now import a wider range of goods without obtaining BIS certification at the import stage, provided they use those goods for authorized operations within the zone. This flexibility can improve the following:

Operational efficiency
Accelerate project implementation timelines
Streamline procurement processes
Reduce administrative costs associated with product certification.

At the same time, businesses should establish robust internal controls to monitor the movement, utilization, and eventual disposition of imported goods. Any transfer of imported goods, or products derived from those goods, into the DTA may trigger QCO compliance obligations, BIS certification requirements, and related regulatory obligations at the time of clearance.’

TO KNOW MORE, CLICK HERE: Import-Export Procedures in India: 2026 Edition

Conclusion

The amendment to Paragraph 2.03A(iii) of the FTP 2023 represents an important clarification of India’s regulatory framework governing SEZ imports. Extending QCO exemptions to all permissible goods required for authorized SEZ operations can enhance operational flexibility for SEZ units and developers while maintaining appropriate regulatory safeguards.

Nevertheless, the exemption remains conditional on the use of imported goods within the SEZ. Businesses should therefore maintain strong compliance processes and carefully manage the movement of imported goods, particularly when they intend to transfer such goods into the DTA, where full QCO, BIS, and other regulatory requirements will continue to apply.

About Us

India Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Delhi, Mumbai, and Bengaluru in India. Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in China, Hong Kong SAR, Vietnam, Indonesia, Singapore, Malaysia, Mongolia, Dubai (UAE), Japan, South Korea, Nepal, The Philippines, Sri Lanka, Thailand, Italy, Germany, Bangladesh, Australia, United States, and United Kingdom and Ireland.

For a complimentary subscription to India Briefing’s content products, please click here. For support with establishing a business in India or for assistance in analyzing and entering markets, please contact the firm at india@dezshira.com or visit our website at www.dezshira.com.