In a departure from its earlier position, the government will soon amend rules to allow units in special economic zones to use old machinery and still qualify for tax concessions.

Earlier, the government had prohibited use of second hand machinery in SEZs to prevent migration of units from Domestic Tariff Area to the tax free zones.

"Amendments have been made in the Income Tax Act and now units will be allowed to use old machinery up to 20 per cent of their capital goods requirement. The changes in the Act will be notified in the next 3-4 weeks," a senior commerce ministry official said on Wednesday.

The issue is currently being looked at by the Revenue Department for fine-tuning the guidelines for transfer of old machinery to SEZs.

The rules have been changed on request mainly from technology companies who wanted to shift some used machinery from their operations outside India. The companies who have made such a request, include Cisco and Honeywell [Get Quote], and the old machinery that they want to bring in constitutes a small percentage of their overall investments in the SEZs, the official said.

Meanwhile, in a seminar on policies and issues pertaining to SEZs, Additional Secretary in the Department of Commerce R Gopalan said SEZs investments in excess of Rs 2,59,000 crore (Rs 2,590 billion) would be made in the zones by 2009 and 1.7 million additional jobs would be created.

On the recent suggestions by Defence Ministries to closely monitor employment of foreign nationals in SEZs, Gopalan said employment would be subject to Indian laws for foreign nationals.

"These laws will prevail. The issue is engaging our attention and we will see how this can be addressed," he said.

India's great rush for SEZs