In a move that will significantly ease the tax burden on India’s biggest information technology companies, the government has decided to amend the law relating to tax exemption for units operating out of special economic zones (SEZs).
SEZs set up by IT majors like Infosys, Wipro and Tata Consultancy Services (TCS) under the parent companies will soon be able to enjoy 100% tax exemption on profits on a par with those set up as separate entities. Prime Minister Manmohan Singh, who is also handling the finance ministry, has agreed to change the relevant norms under the Income Tax Act, a commerce department official has said. The finance ministry will soon issue a notification changing rules under Section 10AA (7) of the Income Tax Act, which will allow all SEZ units to be treated as separate entities and thus be eligible for 100% tax exemption on profits for the first five years of operation. IT majors were losing out
We have finally been able to convince the finance ministry that Section 10AA (7) of the IT Act is an anomaly. All SEZs should be entitled to 100% tax exemption on profits. The relevant notification will be issued by the Central Board of Direct Taxes shortly,” a commerce department official told ET.
Section 10 AA (7) of the I-T Act states that only a proportion of profits of an SEZ unit, based on the proportion of export sales from the unit to the total turnover of the parent company, will be exempt from taxation. For instance, if an SEZ unit exports 50% of the company’s total turnover, then the tax exemption on the profit that the parent company makes from exports will be restricted to only 50% instead of 100% as otherwise promised in the SEZ Act.
