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Govt decision to deny tax holiday to new IT SEZs up for review
August, 26th 2014

The government’s recent decision to deny tax holiday to new IT SEZ units, if more than 20% of the technical manpower was transferred from a pre-existing unit, has come in for a review, indicating that some relaxations in the norm is likely.

The proposals before the Income Tax Department include raising sssthe upper limit on employees redeployed from older business units from the 20% introduced last month to roughly half of the total technical staff strength in the new IT SEZ.

Suggestions under consideration also include allowing the companies that set up new IT SEZs to have the new recruits either at these units or at the company itself. This, sources said, would ensure that the policy intent of job creation is met and new SEZs benefit from experienced manpower flowing from existing IT business units of the parent company.

The Department is also expected to clarify whether technical manpower means revenue earning general employees in the case of business process outsourcing (BPO) units housed in SEZs, said sources privy to the development.

IT industry sources had protested at the circular issued in the last week of July saying the norm would bring hardships to newly set up IT SEZs, which cannot be run by a majority of fresh recruits.

sMany IT companies said that had units in software technology parks, the tax benefit of which expired on March 31, 2011, had subsequently opened fresh IT units in SEZs to take advantage of the 15 year tax holiday available to them. Infosys, TCS, Wipro and HCL Technologies are the major players in this sector.

The Income-Tax Act mandates that benefit of allowing a company to deduct the SEZ export profits from their total taxable income shall be available only if these units are not formed by splitting up, or reconstructing an existing business.

The norm is applicable for plant and machinery too, but the law was silent on redeployment of manpower, the most important resource in the IT and ITeS industry.

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