Special Economic Zones are modern economic zones which enjoy special privileges as compared to the non-SEZ areas in the country. SEZs are established to promote exports and attract investments by concentrating resources along with relaxation in rules in some pockets (designated as SEZs). 
The Special Economic Zones Act was passed by the Government of India in May 2005 and it came into effect on February 10, 2006. 
The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:-Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units100% Income Tax exemption on export income for SEZ units under Section 10AA of 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.Exemption from minimum alternate tax under section 115JB of the Income Tax Act.External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.Exemption from Central Sales Tax.Exemption from Service Tax.Single window clearance for Central and State level approvals.Exemption from State sales tax and other levies as extended by the respective State Governments. All this is done to provide international competitiveness and hassle free environment to promote export.

The advantages of establishing SEZs are:
It attracts foreign direct investments along with domestic investments.It generates foreign exchange by boosting exports.It is a platform where the indigenous companies could collaborate with foreign companies to import technology to the country.Unlike the industrial corridors, SEZs have sound infrastructure with only thirty percent of the area involved in production activities. Thus, social environment, human resource development and environment is taken care of.Needless to mention that it provides employment and skill generation opportunities.