An Indian company exporting software chooses between three structures, and most choose by default rather than by analysis. A Special Economic Zone unit sits inside a notified enclave with fiscal incentives. An STPI unit operates under the Software Technology Parks scheme, which is not location-restricted. A non-STPI or Domestic Tariff Area entity operates under ordinary tax and compliance rules with no special incentives. The differences are large enough to be worth an afternoon before incorporating anything.
On tax, the headline is the SEZ income tax holiday under Section 10AA — a hundred per cent exemption on export profits for the first five years and fifty per cent for the following five. STPI carries no income tax holiday; that benefit ended years ago and any advisor implying otherwise is out of date. Eligibility for the SEZ holiday depends on when the unit commenced operations, so this is a question to put to a tax advisor about your specific situation rather than to assume from a comparison table.
On duties and indirect tax the picture is simpler. Both SEZ and STPI units get customs exemption on capital goods and exemption from GST on imports. A non-STPI entity pays duty and pays GST on imports with input credit available. For a business importing significant hardware — a data-heavy operation, a hardware-adjacent product, a large office build-out — that exemption is real money. For a pure software team on cloud infrastructure with a few dozen laptops, it is marginal.
Compliance is where the real trade sits and it is routinely underweighted. SEZ carries the heaviest burden in Indian industry: strict export performance requirements, maintenance of positive net foreign exchange, periodic reporting, and development commissioner approvals for a range of ordinary business actions. STPI is moderate — single-window clearance, a fifty per cent export minimum to qualify for incentives, and prior approval for transfers. Non-STPI is ordinary statutory compliance and nothing more.
Which suits which is fairly clear once the trade is visible. SEZ suits large export-focused development or research centres with global clients and the administrative capacity to service the reporting. STPI suits scalable software development and IT-enabled services firms — the majority of Indian software exporters. Non-STPI suits hybrid operations serving both domestic and international customers, shared services centres, and consulting entities where the incentives do not apply anyway.
The decision that costs most is choosing SEZ for the tax benefit without capacity for the compliance. A firm that cannot reliably maintain positive net foreign exchange, or that finds every equipment transfer needs an approval nobody has time to obtain, spends the benefit on administration and management attention. If your domestic revenue is likely to grow, note also that the export minimums constrain what proportion of your business may serve Indian clients — which is a strategic limit disguised as a tax structure.
