The Union Budget on July 6 is expected to propose a change in the method of calculating income tax relief for special economic zone (SEZ) units to rectify a defect that limits their tax benefits, commerce ministry officials said.

Section 10AA of the Income Tax Act provides 100% exemption on SEZ export earnings for five years, but computes it with reference to the total turnover of the promoter company, or assessee. This leads to lesser tax relief for companies that have operations outside the special zone.

To rectify this, it is proposed that the Act be amended to compute tax benefits with reference to the turnover of the particular SEZ unit.

Our counterparts in the finance ministry have indicated that the amendment will definitely happen now, a commerce ministry official told ET Now on condition of anonymity.

The proposed amendment is a long-pending demand of the industry that even had the stamp of the previous governments empowered group of ministers (eGOM) on SEZs, headed by Pranab Mukherjee, the current finance minister. It did not materialise then because the revenue department resisted the move. With Mr Mukherjee calling the shots in North Block now, the revenue department has indicated that the amendment would be carried out, commerce ministry officials said.

Incidentally, SEZs managed an impressive performance last fiscal despite a deep fall in global trade. Merchandise exports from these zones rose more than one-third from Rs 66,638 crore in 2007-08 to Rs 90,416 crore last year.

However, experts and industry watchers believe that SEZ units may not be able to sustain this performance if they are not given the much-needed stimulus.

The anomaly should be corrected soon. SEZs are definitely affected by the global economic crisis and the pressures of slowdown will become more visible on their performance if this beneficial change is not made, said LB Singhal, Director General of the Export Promotion Council for EOUs & SEZ Units.