IT/ITeS SEZ developers want ‘proportionate’ tax benefits for common areas in demarcated zones

December 18, 2023

The government is examining a proposal from SEZ developers to allow them to retain part of the tax sops they received for common infrastructure in demarcated IT/ITeS SEZs that can be accessed by both SEZ units and non-SEZ IT/ITeS businesses, sources have said.

“SEZ developers have sought clarification from the government on whether they need to return the entire tax benefits they availed for building infrastructure in the common area of IT/ITeS SEZ units, such as lifts or cafeterias, that they choose to partly denotify. The developers want to convince the government to allow them to repay tax concessions only proportionate to the area that they de-notify,” a source tracking the matter told businessline.

The Commerce & Industry Ministry, however, is hesitant about getting into complexities such as “proportionality” as it could lead to assessment problems, the official added.

The Centre recently amended the Special Economic Zone (SEZ) Rules to allow demarcation of a portion of the built-up area in an IT/ITeS SEZ as a non-processing area, subject to conditions including repayment of tax concessions attributable to the area.

Tax benefits

This also came with a caveat that tax benefits from the creation of social or commercial infrastructure and other facilities, if proposed to be used by both SEZ units and those in the non-processing area, must be repaid based on a certificate issued by a chartered engineer.

“What the developers say is that if they are denotifying two floors in an IT/ITES SEZ building comprising 10 floors, then they are basically denotifying 20 per cent of the area and should be asked to repay tax benefits for common area infrastructure in the same proportion. The problem is that the government wants to take a decision whereby the interpretation of the assessing officer is reduced to the minimum,” the source added.

The government’s decision to allowing co-existence of SEZ units and non-SEZ IT/ITeS business in the same SEZ premises has been largely welcomed by developers who can now optimally utilise the vacant space in existing SEZs.

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