Amended SEZ Rule denies Tax Benefits to These Services/Sectors: Here’s All You Need to Know
Know the Impact and Incidence of Amended SEZ Rules
SEZ Rule – Services – Sectors – Amended SEZ – taxscan
SEZ Rule – Services – Sectors – Amended SEZ – taxscan
The Central Government Ministry of Commerce and Industry has notified an amendment to the Special Economic Zone (SEZ) Rules by way of the Special Economic Zones (Fifth Amendment) Rules, 2023.
The amendment focuses on Information Technology or Information Technology Enabled Services SEZs (IT/ITES SEZs) and provides guidelines for demarcating these zones into processing and non-processing areas.
The recent amendment provides clear guidelines for demarcating SEZ territory into processing and non-processing areas. As per the notification, businesses within an Information Technology or Information Technology Enabled Services Special Economic Zone (IT/ITES SEZ) in a non-processing area are not entitled to the rights or facilities granted to Special Economic Zone Units.
This implies the absence of tax benefits for the operation and maintenance of common infrastructure and facilities within such an IT/ITES SEZ in a non-processing area.
Additionally, enterprises in an IT/ITES SEZ within a non-processing area will be subject to the provisions of all relevant Central Acts, rules, and orders, aligning them with entities operating in the domestic tariff area.
The regulations regarding Non-processing areas for Information Technology (IT) or Information Technology Enabled Services (ITES) Special Economic Zones (SEZs) are outlined as follows:
The Board of Approval has the authority to permit the demarcation of a portion of the built-up area of an IT or ITES SEZ as a non-processing area upon the request of a developer. This non-processing area can be utilized for establishing and operating businesses engaged in IT or ITES, subject to terms specified by the Board.
A non-processing area is defined as a complete floor, and partial demarcation is not allowed. Access control mechanisms must be in place to screen the movement of individuals and goods within and outside the premises of SEZ units and businesses in non-processing areas.
The Board of Approval can authorize the demarcation of a non-processing area for an IT or ITES business only after the developer repays, without interest, the tax benefits related to the non-processing area. This repayment includes tax benefits attributable to the non-processing area and benefits availed for the creation of shared infrastructure, if utilized by both SEZ units and businesses in non-processing areas.
Notably, partial demarcation is prohibited, and strict access control mechanisms must be implemented to monitor movement within and outside the SEZ units and businesses in non-processing areas.
The proportion is determined based on the built-up area of the non-processing area in relation to the total built-up area of the processing area of the IT or ITES SEZ, as specified by the Central Government.
The key impact of the amendment is the denial of tax benefits for businesses operating within the non-processing areas of IT/ITES SEZs. Such businesses will no longer enjoy the rights or facilities granted to SEZ Units, implying a shift away from tax incentives for the operation and maintenance of common infrastructure and facilities.
To Read the full text of the Order CLICK HERE
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