In late May 2026, the DGFT issued a clarification tightening the definition of 'deemed exports' for Special Economic Zone (SEZ) and Export-Oriented Unit (EOU) operators. The circular, effective immediately, now caps domestic sales under deemed export classification at 25% of annual production (previously 30%), and introduces stricter documentation requirements for supply chain traceability.
For SEZ/EOU units currently structuring or scaling domestic B2B supplies, this marks a critical juncture.
Market signals
The 25% domestic sales ceiling applies retroactively to FY 2025–26 filings and carries forward. Units exceeding this threshold risk duty demand and interest levies, even if prior assessments were completed.
DGFT now mandates end-use declarations, recipient GST registration confirmation, and quarterly certification from domestic buyers. Manual submissions no longer suffice; integration with the SEZ e-portal is mandatory from Q2 FY26–27 onwards.
Units relying on deemed export tax neutrality for domestic supplies face margin compression. Many are recalibrating sales mix toward export-only models or duty-drawback schemes to preserve incentive economics.
The DGFT circular materially alters the compliance posture for deemed exports under the SEZ Act and FTP. Units must reconcile current domestic sales pipelines against the new 25% cap and audit prior FY 2025–26 declarations for potential rectification. Failure to re-file corrected statements risks Section 114 duty demands and reputational audit flags during Board approval cycles. Vinayakam Consultants' SEZ practice is advising clients on retrospective deemed export restatement, supply-chain audit protocols, and e-portal system readiness to mitigate penalty exposure and preserve scheme benefits.
Your action checklist
- Audit FY 2025–26 deemed export claims: calculate total domestic sales as % of production and flag any excess above 25% threshold; prepare rectification filings where applicable.
- Collect and digitize end-use declarations, GST registration proofs, and quarterly certifications from all domestic deemed-export customers; ensure SEZ e-portal integration is live by 30 June 2026.
- Revise internal approval workflows to include a compliance gate for deemed export sales contracts; embed 25% cap checks into order-intake and forecasting cycles.
- Engage statutory auditor and tax counsel to review FY 2025–26 financial statements and deemed export schedules; obtain written comfort letter on compliance stance before board / lender reporting.
Frequently asked questions
The May 2026 DGFT circular caps domestic sales at 25% of annual production (down from 30%), effective immediately and retroactively for FY 2025–26 filings.
SEZ/EOU units must now provide end-use declarations, GST registration confirmation from buyers, and quarterly certifications. E-portal integration is mandatory from Q2 FY26–27.
Exceeding the cap risks duty demands, interest levies, and audit flags, even if prior assessments were completed. Corrected statements must be re-filed to mitigate risk.