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IT units in SEZ to get tax sops

Last updated on: August 02, 2011 11:37 IST
Information technology and IT-enabled service units in special economic zones are going to be allowed the same tax concessions as given to developers of SEZs.

The government is to soon issue the new norms, as more and more IT companies don the function of a developer, empowering them to even sub-lease vacant spaces within their campuses.

According to the new norms, likely in August, IT companies would be entitled to the same tax benefits as SEZ developers, if they float a different entity to carry on the functions of the latter and build the specific zone according to their needs.

In addition, if a company wants to lease excess space from the zones to other units, it would be allowed to do so.

At present, units are not allowed to lease out any portion of their premises. So, IT companies would now play the role of a co-developer and, based on that, be entitled to the benefits the developer gets.

Both the entities, developer and units, would have to maintain separate accounts of all imports and domestic procurement of goods and services.

This had long been an issue between the revenue and commerce departments. The former wanted to know why such sops should be given.

"The issue has been solved now and a notification in this regard would be issued soon. The unit and co-developer are adequately ring-fenced so as to avoid double-dipping which could lead to a potential
loss of revenue," a senior government official from the commerce department told Business Standard.

The developers are agreeable, as many of them are facing financial constraints in developing a project completely.

However, the IT companies would also be required to get sanction from the Board of Approval under the chairmanship of the commerce secretary.

"This is a welcome step. If the norms go through, it would help a lot of IT companies and developers would also not have any problems (on this count). This would give ease of business and relaxation. But the process should be made faster," said Hitender Mehta, partner, Vaish Associates, who is heading infrastructure and SEZ practices for the law firm.

He is also heading the SEZ council of Assocham.

The issue was discussed extensively at the last BoA meeting on July 22.

Several such proposals were deferred, such as Hyderabad-based Phoenix Infocity Pvt Ltd asking the board to allow Hyderabad Infratech Pvt Ltd to become co-developer on 1.12 hectares.

Similarly, Chennai-based Marg Digital Infrastructure Ltd requested the board for grant of co-developer status in an SEZ developed by New Chennai Township Pvt Ltd.

Some of the significant incentives available to SEZ developers are exemption from customs and excise duties, income tax exemption on income derived from the business of development of the SEZ in a block of 10 years of 15 years under Section 80-IAB of the Income Tax Act, sales tax and service tax exemptions.