Often while researching for the perfect space for your business, you will come across certain terms that will bamboozle and confuse you, and rightly so. CBD and SEZ are two such terms. In essence, they serve very similar and purposes. But some key differences set these key economic areas apart.
What is a CBD?
A central business district (CBD) designates a city or town area exclusively dedicated to commerce, business, and administration. It is the commercial and financial hub within a city or metropolitan region. Typically situated in the city's nucleus, the CBD incorporates governmental and administrative structures. For instance, in Mumbai, the CBD is positioned in the south-central sector, from Fort to Lower Parel. These areas are positioned in areas of high connectivity and boast the highest efficiency of public transport in the city.
CBDs are characterised by high value and high-rise commercial and residential properties. In fact, these areas demonstrate some of the most expensive real estate in a city due to their prime location and demand. This cost is based on travel connectivity and proximity to priority areas. Since demand is high and is generally fulfilled, CBDs are vastly populated. Hence, in addition to commercial areas, these areas feature a mix of amenities such as shopping malls, hotels, and other entertainment options, catering to both business and leisure needs.
Burgess Model
The Burgess Land Use Model, also known as the Concentric Zone Model, is a theoretical framework developed to understand the spatial organisation of cities. It provides insights into urban land use patterns and is used as the basis for the CBD model. Here's a brief overview:
Central Business District (CBD): Positioned at the model's centre, the CBD is the core economic and commercial zone. It typically houses high-density commercial activities, offices, and retail spaces.
Transition Zone: Surrounding the CBD is the transition zone, characterised by a mix of land uses. This area often experiences social and economic challenges as it transitions from commercial to more residential functions.
Residential Zones: Beyond the transition zone, the model identifies concentric rings of residential areas. The farther from the CBD, the more suburban and less dense the residential zones become.
Communities and Industrial Zones: The outermost rings may include suburban communities and, in some cases, industrial zones, and special economic zones (SEZ).
How to lease an office?
Leasing an office space is a crucial step for a business owner. Now there are 2 ways to go from here. One can choose to either lease outside the Business District, which comes with the perk of affordability, or they can choose to invest in a space inside the Business District. This gives the company more credibility, greater connectivity from all parts of the city and most importantly, more bang for your buck as these spaces are held to a higher standard and offer more in terms of variety, amenities and flexibility.
To lease an office space, start by determining your specific needs and requirements for the office or commercial space. Familiarise yourself with different classes of office buildings, considering factors like quality and amenities. Once you've identified a suitable space, carefully examine the lease agreement, understanding the terms and conditions between you and the landlord. Before finalising the deal, analyse all associated costs, not just the rent, to ensure it aligns with your budget. It's crucial to consider the size, design, and layout of the office, ensuring it meets your business needs. Seek expert advice if necessary and remember to negotiate terms that work in your favour, creating a mutually beneficial arrangement between you and the landlord. To completely familiarise yourself with this process, take a look at our article that details Commercial Real Estate Leasing Process and a comprehensive document checklist.
What is a SEZ?
A Special Economic Zone (SEZ) is a designated geographical area that operates under specific laws and regulations to promote economic growth and boost exports. These zones offer various incentives such as tax benefits, streamlined regulatory procedures, and infrastructure support to encourage businesses to set up operations within the SEZ boundaries. The objective is to enhance competitiveness, create employment opportunities, and contribute to overall economic growth.
These areas are more utilitarian when compared to CBDs and focus primarily on incoming and outgoing distribution. Mostly located near seaports and airports, these areas facilitate import and export of goods and management is carried out on-site. Aesthetics are industrial minimalistic but offer a plethora of tax benefits for companies, as per the Special Economic Zone Act, 2005.
Special Economic Zones Act, 2005
“It is defined as an Act to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto.”
The chief objectives of the SEZ Act are:
- To create additional economic activity.
- To boost the export of goods and services.
- To generate employment.
- To boost domestic and foreign investments.
- To develop infrastructure facilities.
Tax Benefits of SEZ
In order to promote economic growth and generate employment, the government offers participating companies several incentives such as:
Duty-free imports and exports.
100% Income tax exemption on export income for SEZ units under the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years, as per the sunset clause.
Exemption from Minimum Alternate Tax (MAT)
All imports don’t require a licence.
Barring a few exceptions, most manufacturing allows 100% Foreign Direct Investment (FDI)
Most SEZs offer ready-to-move units to promote quick circulation of operations.
Non-applicability of connected environmental laws
SEZs are located within a nation's borders, but for taxation purposes, they are considered foreign territory. Because supplies into SEZs are regarded as exports, they are free from paying GST. However, deliveries of goods or services to any person within a SEZ shall be considered ordinary interstate shipments and will be subject to IGST. Nonetheless, a SEZ is exempt from paying taxes when it provides goods or services to a Domestic Tariff Area (DTA), even though the DTA's recipient is still required to pay.
For more information, visit the official government website specialising in leasing SEZ units.
According to recent amendments in the act, the Ministry of Commerce and Industry has approved ongoing tenants to sublet excess space to IT companies. This move addresses concerns raised by developers who said that real estate wasn't being used to its full potential because so many IT units in SEZs worked from home. As things stand, demarcation is done unit-by-unit, which has left big areas of SEZs empty. The new rules are meant to make SEZs more flexible, especially in IT SEZ Parks, which will help the economy and create jobs.
How to lease a SEZ unit in Mumbai?
Unlike an office, units in SEZs are leased to corporations from the government because coastal and aerial distribution centres are controlled by the State. There are 270 SEZs currently operational across India, with 425 approved to be operational. If you want to lease an SEZ in Mumbai, the lucrative commercial capital, here is how you do it:
SEZs broadly fall in two categories – Multi-Product SEZ and Sector Specific SEZ. For setting up a Unit, identify the SEZ. A unit can be set up for manufacturing of goods or for rendering services including trading.
A unit can also be set up in an SEZ for rendering services or manufacturing services to overseas entities.
- An entity willing to set up a SEZ Unit has to submit a single application in a prescribed Form (Form F) in five copies to the Development Commissioner of the SEZ in which a unit is proposed to be set up with a copy to the Developer of the SEZ. Following details/documents are required:
- A crossed demand draft for Rs.10,000/- drawn in favour of Pay & Accounts Officer, Ministry of Commerce & Industry, Mumbai
- A copy of certificate of incorporation along with Article of Association and memorandum in case of companies and partnership deed in case of partnership firm.
- Residence proof in respect of proprietor/partners/directors as the case may be.
- Income Tax returns of the proprietor or partners of the last three years. In the case of a company, the audited balance sheet for the last three years.
- A brief project report giving experience of the promoters/marketing tie-ups/ sources of financing etc.
Final Thoughts
CBDs and SEZs are essentially similar in function. While CBDs pulse with the rhythm of urban life and commerce, SEZs operate as economic laboratories, experimenting with incentives and regulations. Understanding the similarities difference allows us to appreciate the varied strategies employed by nations and cities to spur growth and development. Depending on your type of business, you can choose between the two. While one grants you comfort and connectivity, the other grants you a load of financial incentives. While one is accessible exclusively through the government, well…we can help you out with the other one at Prop Returns.
