A Special Economic Zone (SEZ) is a dedicated zone wherein businesses enjoy simpler tax and easier legal compliances. SEZs are located within a country’s national borders. However, they are treated as a foreign territory for tax purposes.
This is why the supply from and to special economic zones have a little different treatment than the regular supplies. In simple words, even when SEZs are located in the same country, they are considered to be located in a foreign territory.
SEZs are not considered as a part of India. Based on this, it can be clearly said that under GST, any supply to or by a Special Economic Zone developer or Special Economic Zone unit is considered to be an interstate supply and Integrated Goods and Service tax (IGST) will be applicable.