Even as the information technology (IT) industry continues to rue the discontinuation of the software technology parks (STPI) scheme, Gujarat-government's ambitious project, Gujarat International Finance Tech City (GIFT) has initiated steps to attract STPI units to set up shop at the GIFT SEZ in Gandhinagar.

"GIFT City is envisaged to house some of the top financial and IT companies in India. The large SEZ area is best suitable for the existing STPI units to make a shift and avail several benefits including tax breaks and infrastructure facilities," said Ramakant Jha, director, GIFT. The STP scheme was a sector specific export oriented scheme, which was introduced in 1991 to encourage domestic computer and IT industry.

The direct tax benefits available under the Section 10 A and 10 B of the Income Tax Act has expired on March 31, 2011.

Many IT and ITeS players in Gujarat and in the country raised concerns of the discontinuation of the STPI scheme. GIFT, which was notified as a special economic zone (SEZ) on August 18, 2011 has laid out several tax benefits for the units to set up a facility at the SEZ.

GIFT SEZ offers a 15-year income tax holiday to units operating in the SEZ and earning export profits, however the applicable minimum alternate tax (MAT) would be applicable on the unit as described by the central government.

The MAT is applicable to units in SEZs and the SEZ developers at a rate of 18.5 per cent.GIFT provides indirect tax benefits on procurement of goods and services required to set up the units. Exemption of excise duty, customs duty, service tax and CST for interstate procurement.

"There are indirect as well as direct tax benefits for the companies to set up unit in GIFT. MAT is a concern, but it is possible to avoid MAT by setting up a unit as part of the existing company, which has got export profits. This means, normal tax liability will subsume the MAT liability," said Rajiv Chug, partner, Earnst & Young Pvt Ltd.

However, industry insiders are sceptical about the economic viability of the unit at GIFT SEZ. "We are not sure how much economically viable it would be. There is a major concern of MAT, besides that you need to have strong advisors to guide you for the project and keep its books. This may not be possible for SME IT units," said an Ahmedabad-based IT solutions provider and a member of Gujarat Electronics & Software Industries Association (GESIA). GIFT Company Limited, a 50:50 joint venture between state government-promoted Gujarat Urban Development Company Ltd (GUDC) and IL&FS Ltd is developing India's first multi-service SEZ at the GIFT City. The GIFT City project is spread across 886 acres (about 358 hectares), out of which 261 acres comes under the SEZ .