The Hindu Business Line : SEZ tax issue: Nasscom seeks clarification

New Delhi, June 17 The National Association of Software and Services Companies (Nasscom) has approached the Government seeking removal of certain “anomaly” in Section 10AA (7) (of Income Tax Act), which currently restricts the benefits of tax exemption for IT companies setting up operations in a special economic zone (SEZ).

“We are currently engaged in various rounds of discussions with the Government. Given the current norm, only a fraction of the income from SEZs is tax free, which takes away a large amount of the benefit of moving to SEZs,” Mr Ganesh Natarajan, Chairman of Nasscom and CEO of Zensar Technologies Ltd, said.

The issue had been highlighted by Nasscom even its pre-Budget memorandum to the Government.

At present, SEZ units set up by existing companies would not get 100 per cent Income Tax exemption as Section 10AA(7) restricts the benefit as a proportion of SEZ unit turnover to entity turnover.

This reduces tax benefits for SEZ units.

An IT industry observer pointed out that the current language of Section 10 AA (7) significantly reduces the deductions for export profit.

“A similar issue had cropped up in case of STPI and EOU units in Chennai, and was subsequently sorted out. In the present case, if the company’s turnover is taken into account instead of the turnover of the unit, it can remove the SEZ benefits,” the official noted.

Related Stories:
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Tax waiver for STPI units to continue till March 2010
Panel draws attention to tax issues

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