SEZ units want tax sops with retrospective effect

Nayanima Basu
Financial Chronicle
The commerce and industry ministry has written a letter to the finance ministry urging that tax exemption provided under Section 10AA of the Income-tax Act be given retrospectively and not on a prospective basis to units located in special economic zones (SEZs). The issue has been hanging fire for over three years now and the move could trigger a fresh row between the two ministries.

Recognising the anomaly, the finance minister had said in February that it would be corrected as it had resulted in “discriminatory treatment of an assessee having units located both in SEZs and the domestic tariff area (DTA) vis-à-vis an assessee having units located only within SEZs.”

It has been proposed that the changes would be effective from April 1, 2010, whereas the companies have demanded that this be applicable retrospectively, from February 10, 2006, when the SEZ Act came into effect.

Due to this provision, companies, especially IT firms that have units in DTA are not getting any benefit as it limits the benefits of getting a tax exemption. IT biggies such as TCS, Infosys, Wipro and HCL are not able to avail the full benefit.

“Tax exemption has been categorically provided in the SEZ Act. Even though the anomaly had been removed, it should be done retrospectively, else the firms would not be able to get benefits,” said LB Singhal, director-general, export promotion council for EOUs and SEZs.

Bengal SEZ builders seek more time

Sounak Mitra, Calcutta
The Telegraph
Many developers of SEZs in Bengal, which have received in-principle approval from the commerce ministry, have either shelved their plans or want more time to acquire land.

Among them are Purnendu Chatterjee-led The Chatterjee Group, Venugopal Dhoot’s Videocon and a city-based Rahul Saraf-headed consortium.

A proposed SEZ first gets in-principle approval, when the developer is yet to get land. After the developer acquires land, the SEZ gets formal approval. Following the formal approval, an SEZ is notified by the central government.

The Chatterjee Group — which had obtained in-principle approval for an IT SEZ on 494 acres in Siliguri — has dropped its plans because of land acquisition problems. A few months back, DLF had sought a denotification for a proposed IT SEZ over 10.12 hectares at Rajarhat.

At present, there are three SEZs in the state— Falta, Manikanchan and Wipro. Till March 2009, the government has given in-principle approval to 14 proposals in the state, formal approval to 14 and notified 9.

Govt nod for three new SEZ plans

New Delhi
Deccan Herald The Indian Express Business Standard
The Centre, on Tuesday, approved three new proposals for setting up Special Economic Zones (SEZ) including two in Karnataka in the Information Technology (IT) sector.

These were cleared by the Board of Approval (BOA) at it meeting chaired by Commerce Secretary Rahul Khullar.

The BOA approved the proposal of Brooke Bond Real Estates Private Limited to set up a SEZ in the IT/ITES sector in Bangalore.

It also cleared Karnataka State Electronics Development Corporation Limited proposal to set up a SEZ at Shimoga also in the IT sector.

It gave in-principle approval to proposal of Lanco Solar Private limited to set up a solar SEZ in Orissa.

Second IT boom on cards

Subrahmanyan Viswanath, Bangalore
Deccan Herald
Karnataka, which has been in the forefront of setting a model for other states in the new economy sectors, is all set to usher in a second IT revolution.

The move follows the State’s bid to give shape to an Information Technology Investment Regions (ITIRs) policy mooted by the Union Ministry of Information Technology & Communications.

The State government through its nodal agency—Karnataka Electronics Corporation (Keonics)—has identified five corridors for setting up the proposed ITIRs.

The ITIR policy is aimed at promoting investment in IT, ITeS and electronic hardware manufacturing (EHM) sectors. The corridors identified for ITIRs are Hubli-Dharwad-Belgaum, Bangalore-BIAL-Devanahalli, Mangalore-Surathkal-Udupi, Shimoga - Bhadravathi and Bangalore - Tumkur regions.

However, how far the new move would lure investors into ITIRs is debatable given that some of the IT parks in State’s Tier-II cities have elicited only muted response.

Official sources told Deccan Herald that each ITIR is expected to be in a 40-sq km area covering 10,000 acres in each region. The ITIRs would boast of excellent infrastructure so that prospective investors can reap the benefits of networking and greater efficiency through common infrastructure and support services. Such a complex would also help boost exports and generate employment.

Sources said Keonics had invited expression of interest (EoI) from consultants to prepare a techno-economic pre-feasibility report (TER), in the first phase, for the Hubli-Dharwar-Belgaum ITIR. Of the three consultants—PriceWaterhouse Coopers Pvt Ltd (PWC), IL&FS and Mott MacDonald—shortlisted for giving technical presentation, PWC and Mott MacDonald were chosen. The two would undertake necessary survey and submit a techno-feasibility report (TFR) which will go into the identification of government and private land available for acquisition, water availability and power. Since undertaking the TFR, to be submitted in 60 days, would cost over Rs 30 lakh to Rs 3 crore, the proposal has been set for financial clearance. The government is keen to take up an ITIR in the Bangalore-BIAL-Devanahalli region as well simultaneously; EoI has been invited from consultants for TFR.

The ITIRs would also host processing facilities where IT, ITeS and EHMs would be located and non-processing areas, which will include residential, commercial and other social and institutional infrastructure. The minimum processing area for ITIR will be about 40 percent of the total designated area. The ITIRs may include SEZs, industrial parks, free trade and warehousing zones and export-oriented units. To be developed on public-private partnership, the centres will ensure external physical infrastructure linkages—roads, airports, and rail. Each ITIR will have large IT/ITeS/EHM units. While ITIRs will be built and managed by developers, other facilities would be provided by the Centre and State government

Extension of sunset clause for industrial parks hailed

Ronojoy Banerjee, Saahil Anant, New Delhi
Financial Chronicle
India Inc on Monday welcomed finance minister Pranab Mukherjee’s measure to extend the sunset clause for industrial parks by 2 more years up to March 31, 2011.

Ganesh Natarajan, CEO of IT firm Zensar Technologies, said, “Exporters will get a big relief. The slowdown had made life very difficult for most of them and hence the move is welcome.”

"There was a compelling case for the extension of tax holiday for industrial parks as IT spending is going down and the industry is facing challenges. This would help the IT industry as the STPI scheme is expiring and the only alternative left was SEZs," said Jai Mavani, executive director (infrastructure and government practices), KPMG.

"There was a demand for the extension. This comes as a major stimulus for India Inc from the government," a senior commerce and industry ministry official who did not want to be named said.

Shriram properties to invest rs 4,900 crore in 3 years

T E Narasimhan, Chennai, July 27, 2009
Business Standard
Shriram Properties, part of Chennai-headquartered diversified Shriram Group, is planning to invest around Rs 4,900 crore in various residential and commercial projects.

Shriram Properties managing director M Murali said that the company had set a target to become Rs 1,000 crore company over the next three years from the present Rs 450 crore.

Speaking about commercial projects, Murali said that so far the company was promoting IT/ITeS projects and delivered one million sq.ft. currently construction is going on at eight lakh sq.ft of land near Chennai. The company also got an approval to pro-mote a special economic zone for IT/TeS in Kolkata. Total investment in the proposed project would be around Rs 1,200 crore.

Helipads, Skywalks planned at Mukesh Ambani promoted SEZS

New Delhi, July 27, 2009
The Economic Times Business Standard
Mukesh Ambani-promoted Navi Mumbai SEZ Private Ltd has sought government permission to set up helipads and skywalks at its Special Economic Zones on the outskirts of the metropolis.

The SEZ firm co-promoted by Ambani's close associate Anand Jain has plans to build helipad at four and skywalks at five of its Special Economic Zones at Navi Mumbai.

As per the proposals submitted before the BoA, the helipads will come up in the "non-processing" areas of the three SEZs for IT and ITES, and one for the multi-services.

Three of these are located at Ulwe, and one at Kalamboli -- both in the Navi Mumbai area.

BOA TO MULL 5 SEZ Proposals on August 11

New Delhi
Business Standard The Economic Times (Delhi edition)
The Commerce Ministry will consider on August 11 five proposals for setting up SEZs, including those of Brooke Bond Real Estates and Deccan Infrastructure.

The 19-member inter-ministerial Board of Approval (BoA) headed by Commerce Secretary Rahul Khullar may also give formal approval to 25 developers who have been given more time to execute their projects.

The Board would also take a decision on requests of Lanco Solar and Cochin Airport International to set up special economic zones (SEZs), a source said.

Brooke Bond Real Estates plans to set up an IT\ITeS SEZ over 11 hectare in Karnataka, while Deccan Infrastructure has moved the BoA for permission to develop two tax-free zones in Andhra Pradesh.

The developers, including Ansal SEZ in Gurgaon (Haryana), Ranbaxy Laboratories in Mohali (Punjab) and Maytas Enterprises in Ranga Reddy (Andhra Pradesh), who have been given one-year additional time to go ahead with their projects, may get formal approval for the extension, sources said.

Two developers - Maytas Ventures and Sanvo Resorts - have requested the BoA to de-notify their projects.

So far 576 formal approvals have been given for setting up SEZs, of which 319 have been notified. Exports from SEZs grew by 36 percent to Rs 90,416 crore in 2008-09.

Builder's novel way to deliver IT space

D Govardan
Financial Chronicle
At a time, when several property developers across the country are sitting on large stock of unoccupied built-in IT space, Chennai-based India Land and Properties, part of Americorp Group, is going ahead with its Rs 320 crore, 1.8 million sq ft, IT special economic zone (SEZ) at Saravanampatti in Coimbatore.

But, instead of following the trodden path of getting the building ready and waiting for occupants, India Land adds space as and when it gets a client. Helping it to achieve this unique concept is the pre-cast concrete technology that ensures that the company gets the required space ready in record time.

Use of pre-cast concrete technology enables it to deliver the space, complete with glazing and air-conditioning, within three months after signing up a client.

"Normally, this technology is used in construction of bridges. For the first time, it is being used in buildings in a big way," said S Salai Kumaran, director, India Land.

The IT SEZ is being developed jointly with Coimbatore-based KGISL. According to him, pre-cast concrete technology is being increasingly used in countries such as Singapore, Dubai and Indonesia.

"The method not only ensures zero wastage, but also offers better quality and saves cost," he added.

Slabs are produced at the site using steel moulds. These are then lifted and fixed using high capacity cranes. "We have signed up contractors from Singapore and they have already completed 5 lakh sq ft of pre-cast concrete slabs," Kumaran said.

Using the pre-cast concrete technology, the builder is able to complete one floor in about seven to eight days, against 12­20 days taken in conventional method, where quality could be comparatively inferior and there's more wastage.

"We have used this technology for beams and floors. It can even be used for columns and pillars," he pointed out. In fact, impressed by the delivery standards of the contractors, Americorp Construction, the parent company of India Land, has taken them on its rolls.

Kumaran said the use of precast concrete technology has helped the company save up to 15 percent of the estimated Rs 320 crore project cost.

"Though the economic slowdown has delayed the completion of the project and the resultant interest charges may gobble up the purported savings from use of this technology, we expect to complete the project within the estimated budget. Had we opted for traditional construction method, the project would have cost us Rs 350 crore due to delay and interest burden," he explained. Of 1.8 million sq ft, about 1.3 million sq ft will be office space, with the rest would be reserved for basement parking and other facilities.

Green nod for effluent plant at Fab city SEZ

Hyderabad
The Hindu Business Line
The Andhra Pradesh Environment Impact Assessment Authority has issued environmental clearance for the proposed common effluent treatment plant (CETP) planned at the Fab City Special Economic Zone at Maheswaram near Hyderabad.

The Fab City SPV (India), a subsidiary of Andhra Pradesh Industrial Infrastructure Corporation (APIIC) and IL&FS, has established a CETP on build-own-operate basis through IL&FS Waste Management and Urban Services Ltd.

According to an IL&FS statement, the initial capacity of the CETP at the Fab City would be 1.1 million litres a day which would be scaled up to meet the future demand. . The first module would facilitate the photovoltaic cells manufacturing units being established in the initial phase.

IT Park looks for ‘ANCHOR PLAYER’

Vijayawada
The Hindu
Though recession is proving to be a little dampener, officials of the L&T Hitech City project at Kesarapalli near here are confident that a major software company will be attracted to fill the space of “anchor player” in the project.

Total space
So far, only two companies have come forward to occupy some space at the IT Park’s first tower, which will have a total space of nearly 2 lakh sq.ft. on completion of all works soon. The Extranet Software Solutions and the Tektraks Technologies have booked space here and they are going to occupy the same after the tower is inaugurated next month.

For giving a kick-start to the project’s entire operations, it will need at least one major software company initially and its role will be pivotal in enhancing the image of the IT Park as a potential software hub in the region.

The officials are also looking at the possibility of attracting small and medium players by offering space in blocks of 3,500 sq. ft. each.

The IT tower will have five floors, including the ground floor, each having 40,000 sq. ft. and providing the best infrastructure needed for software companies. A major company having the potential to occupy one entire floor of 40,000 sq. ft. should come to give the much-needed initial boost to the prospects of the IT Park.

At the recently conducted roundtable on ‘Industrial development in Vijayawada and surrounding areas’, Vijayawada MP Lagadapati Rajagopal cited the example of IT Park project in response to the concern expressed by some speakers over lack of industrial development in the district.

The MP said that a good IT Park was ready for occupation at Kesarapalli, but only two companies expressed interest so far. He said that the first priority should be to attract software companies and develop the city as a software hub, as it would not require huge tracts of land.

The officials of the IT Park say even big companies will slowly turn their attention to tier-two cities like Vijayawada in due course of time. They maintain that the companies can reduce costs significantly as space will be offered to them for a rental that is 40 percent cheaper than the same in metro cities. This is available with the same quality of infrastructure, says IT Park chief operating officer V. Udaya Bhasker.

He says consultations are on with three to four companies as of now, while enough space will be offered to attract small and medium players too.

DLF looks for a way out of Rs 1,500 crore Chennai SEZ

D Govardan, Chennai
Financial Chronicle
DLF wants to get out of the Rs 1,500 crore IT SEZ project at Taramani in Chennai.
The company has asked the state government and Tidco to either call a re-tender at the original base price fixed for non-SEZ commercial activity, or refund the Rs 725 crore it had paid last year while taking possession of 26.64 acres on a 99-year lease.

DLF had planned to develop 4.5 million sq ft space along with the state-owned Tidco. The first phase of 2.5 million sq ft of processing area was to be ready by the end of 2009.

Among the reasons listed by the company for its demand is the delay in getting SEZ status for the special purpose vehicle, DLF Info Park Chennai (Developers), due to lack of contiguity of the land parcel.

The Tamil Nadu development commissioner for SEZs had cited the presence of a mass rapid transport system (MRTS) railway line that divides about a 3-acre chunk from the main land parcel for not recommending the SEZ status.

“Tidco had obtained the SEZ approval for the site even before it opened the price bids. The MRTS line existed even then. If Tidco could get the approval, how come DLF is now harping on the issue of non-contiguity of the land parcel,” a senior state government official said, when contacted by Financial Chronicle

He was skeptic about DLF being refunded Rs 725 crore.

“The company may have changed its plans due to the economic slowdown and the need to preserve or get back the cash,” the official added.

Tidco had invited bids for the IT SEZ project at Taramani in September 2007. DLF bagged the bid and signed a formal agreement with Tidco on April 23, 2008. It paid Rs 725 crore ahead of the July 31, 2008 deadline.

Other reasons cited by DLF include the refusal of the Chennai Metropolitan Development Authority (CMDA) to entertain DLF’s project plan and also a right-of-way claim by Ascendas IT Park for an 18-metre road.

According to the company, the land and the board of approval’s clearance have not been transferred to the SPV and remain in Tidco’s name. Several other approvals, including environment and airport height restriction clearances had been taken in the SPV’s name.

A way out now for DLF could be to seek extension of deadline for implementing the project.

“The 99-year lease period offers enough cushion for any level of commercial activity and viability,” the official said.

VEGA KEEN to develop innovation park

Rahul Wadke, Mumbai
The Hindu Business Line
The Mumbai Metropolitan Region Development Authority’s vision for an innovation park could be made a reality thanks to an Italian company.

Venice Gateway for Science and Technologies (Vega), which undertakes industrial research for companies back home, is keen on developing a similar one in Maharashtra. MMRDA’s model would typically involve an investment of Rs 1,000 crore across 2,000-3,000 acres near Mumbai.

Vega has linked universities, centres of excellence and the manufacturing sector to sharpen the competitive edge of Italian companies in the global market. Over 200 companies have established their offices in the park.

The park will serve as an incubation zone for nanotechnology and biotechnology. “Our talks are at a nascent stage, but such parks could come up near Panvel or Lavasa near Pune. MMRDA could enter a joint venture with the Maharashtra Industrial Development Corporation and other private sector companies for this exercise. It is now working on the techno-economic feasibility study,” said Ratnakar Gaikwad, Commissioner of MMRDA.

Giorgio Mattiello, International Projects Advisor (Innovation Area), Vega said, “We want to build on the experience of the Venice park and create a similar model that can meet local requirements.”

Infopark board’s nod for construction at cherthala

Kochi
The Hindu
A two-lakh sq.ft capacity building will be constructed in the first phase of the proposed IT park at Cherthala. This was decided at the meeting of the Board of Governors of Infopark, which met here on Wednesday.

The meeting evaluated the progress of the preliminary works of the proposed Information Technology parks in Cherthala, Ambalapuzha and Koratty being set up under the aegis of Infopark.

The meeting evaluated the construction of Athulya, the new building complex coming up on the Kochi campus of Infopark, and expressed satisfaction about its progress.

Punjab clears much-awaited SEZ bill

Rahul Kumar, Chandigarh
Business Standard
With the SAD-BJP government clearing the much-awaited Punjab Special Economic Zones Bill, 2009, on Saturday, the decks have been cleared for developers to give a major boost to the development of the SEZ's in the state.

As per the norms laid down in the policy, the requirement of areas for setting up SEZs in case of a multi product SEZ is 1,000 hectare, product-specific 100 hectare, IT-specific 10 hectare and warehousing 40 hectare. Speaking about the policy, state industries & commerce minister Manoranjan Kalia said due to paucity of land and high cost in the state, the government has asked the Centre for relaxation in the aforementioned norms and has also sought permission for development of SEZs as per viability of the project, to be determined by the developer.

Mohali to be developed in phases under master plan

Nitin Jain, Mohali
The Indian Express
According to the final master plan of the state Government, Mohali will be developed in phases. Reason: simultaneous treatment of the entire 16674-hectare area, marked for development, will be neither feasible nor desirable.

The phasing plan, the copy of the master plan says, has been designed to ensure that the development of land within the local planning area is well-coordinated and involves minimum investments on the provision of infrastructure.

Considering their potential to spearhead IT growth, education and business tourism in the region, the Airport City, Knowledge City, Business and Hi-tech Parks have been earmarked for the first phase of development.

Real estate giant IREO to invest $500 Million in India

New Delhi
The Economic Times Business Standard Hindustan Times Financial Chronicle
Global real estate giant IREO will pump in $500 million in various infrastructure projects in India over a period of seven years, the company said Thursday.

IREO, which has invested $1.5 billion in India, is already one of the largest investors in the country's real estate sector.

"Having already invested $1.5 billion, we still have another $500 million available in cash for further investments in our projects," Lalit Goyal, vice-chairman and managing director IREO, said.

The company currently has 13 projects and is in the process of constructing an IT SEZ (special economic zone) in Pune.

"We have already commenced construction of a five million square feet IT SEZ (Pune) and a three-million-square-feet housing project," Goyal said.

Added Anurag Bhargava, chairman IREO: "The Pune SEZ should be completed by next year."

The company has projects in many states including Haryana, Punjab, Tamil Nadu, Maharashtra and Delhi.

The company said it would develop an eight-million-square-feet housing project in the next 12 months.

AP expects Rs 16,000-cr investment in IT sector

Amit Mitra, Hyderabad
The Hindu Business Line
Despite recessionary trends, the Andhra Pradesh Government is bullish on investments in the IT& ITES sectors in the State.

The Government expects the IT-related SEZs and Software Technology Parks of India (STPI) in the State to receive about Rs 16,000 crore investments in the next five years.

It has so far received investments worth Rs 3,739 crore, with the State exporting IT products worth Rs 32,509 crore last fiscal, recording a 24.5 percent growth.

An area of 65,32,044 square metres is proposed to be built up in the State IT-related SEZs and STPI, with the built-up area being 4,47,747 sq metres. Out of this, the allotted area so far is 1,91,734 sq metres and the balance area of 2,56,013 sq metres is ready for allotment, a senior State Government official said.

Last fiscal, 69 new IT/ITES companies registered as STP units in the State. The major companies that got registered include Patni Computer, Mediatex India and Mphasis Ltd. As of now, there are about 350 new formal approvals, out of which 39 have already been notified.

Visakhapatnam is emerging as the next IT hub, with IT exports from the city being Rs 502 crore last fiscal, followed by Vijaywada and Tirupathi, which clocked Rs 62 crore and Rs 2.74 crore respectively.

An interesting feature in the exports has been the efforts by the software exporters to scout for new global markets, managing to reduce their dependence on the recession-hit US market from 61 percent in 2007-08 to 52 percent in 2008-09, at the same time increasing its share in the European market from 20 percent to 26 percent during this period.

Make SEZ scheme attractive

D. Murali
The Hindu Business Line
There is urgent need for the Government to announce an extension of the tax holiday for the IT sector under the Income Tax Act, 1961 beyond March 31, 2010. However, to help in mitigating the impact of the economic slowdown and maintaining the competitive edge of this sector, it will be beneficial to the industry if the tax holiday is extended by a block of two-three years as compared to piecemeal extension, says Naveen Aggarwal, Executive Director, ICE Tax, KPMG.

This will give enough room to the players in the industry to plan their business and would attract long-term investments, he explains, during a pre-Budget interaction. “Even if the government wants to bring this sector in the tax net, it would be worthwhile to do so in a phased manner. A sudden climb in the tax rate from 11.33 percent (at present applicable under MAT) to 33.99 percent may be too steep for the industry to bear.”

The income-tax holiday has been the industry’s saviour over the years and has played a pivotal role in its success, and one of the sectors that has been worst affected in India by the global recession is the IT/ITES sector, Aggarwal observes.

“This sector has perhaps been one of the biggest success stories in India post the economic reforms of 1991. While a lot of credit for the success of this sector goes to the technical brilliance and the entrepreneurial spirit of a young, ambitious India, eager to take on the world, the Government policies have also played a key role in catalysing its growth.”

Excerpts from the interview.
On SEZ issues.

Relaxation on use of old plant and machinery: To make the SEZ scheme more attractive, the Government should consider relaxing the existing stringent conditions for transition of STP/EOU units to SEZs. It is suggested that the limit of 20 percent for transfer of used machinery or plant to the new SEZ unit be increased to 40 percent. This would grant some flexibility to the industry while preserving the intention of law, in the sense that the majority of the total machinery or plant used in the SEZ unit would still be new.

Government SEZs: In the current scenario, SEZs are not a commercially viable option for small and medium sized enterprises (SMEs), as the minimum space available and investment required in the SEZ are substantially high. As a result, these SMEs are largely deprived of the benefits of the SEZs. In order to address this issue the Government may consider setting up SEZs developed/operated by it that allow SMEs to acquire space and invest as per their requirements.

Alternatively, the Government may introduce regulations that make it mandatory for the private SEZ developers to reserve a certain portion of their SEZ space exclusively for SMEs.

Formula anomaly: As per recent news articles, the matter of formula anomaly under section 10AA of the Act is reportedly taken care of. Relevant legislative amendments need to be carried out as soon as possible to avoid confusion on this issue.

While the IT/ITES industry is at the crossroads, awaiting the Budget with bated breath, the present adversity still holds a few opportunities. As some of the biggest companies in the West battle for survival, outsourcing is one of the best ways in which they can achieve further economies in these challenging times. However, in order to help the industry exploit this situation to its advantage, the Government must play its part and fulfill the industry’s wish list. It’s over to the Finance Minister.

Extend TAX Relief to it Industry by at least three years

Himanshu Parekh and Ashish Agrawal, June 29, 2009
Mint

The information technology (IT)/IT-enabled services (ITeS) industry has played a key role in putting India on the global map. The Indian IT/ITeS industry is now a $52 billion (Rs 2.5 trillion) giant and its contribution to the country’s gross domestic product (GDP) has quadrupled from 1% to 4% in the last decade. However, the industry is plagued with some issues on the taxation front.

Extension of tax holiday to software technology parks (STPs)/export-oriented units

The IT/ITeS industry is eligible for a tax holiday under section 10A/10B of the Income-tax (I-T) Act, the benefit of which is set to expire on 31 March. Considering the global turmoil and its impact on the IT/ITeS industry in India, an extension of this tax holiday by at least three years will provide a major fillip to the industry, especially when the country is witnessing a downward trend in exports.

Tax holiday for units in special economic zones (SEZs)

The formula provided in section 10AA of the I-T Act for computation of deduction available to SEZ units, in most cases, would result in the profits of the SEZ unit not being entitled to the 100% tax holiday as was promised at the time of introduction of the SEZ regime. The government needs to address this anomaly so as to avoid unnecessary litigation.

Fringe benefit tax (FBT)

One of the key FBT issues affecting this industry is that with a large number of employees travelling to and from India on a regular basis, it becomes extremely difficult to ascertain the “employees based in India”, which is a prerequisite for the levy of FBT. Further, a major incentive provided by the IT/ITeS industry to their employees is in the form of employee stock option plans (Esops) and levy of FBT thereon proves to be a major dampener. Considering the major compliance burden cast by FBT on taxpayers and also considering the meagre revenues which FBT contributes to the exchequer, the FBT regime could be given a burial, especially for the IT/ITeS industry and in particular for FBT on Esops. Further, the benefit of lower FBT on conveyance and hotel expenses needs to be extended to the ITeS industry also.

Issues surrounding computation of deduction under section 10A/10B

Plenty of controversies surround the computation of deduction vis-à-vis the set-off of business loss of an STP unit against a non-STP unit and vice versa, adjustment of profits of an STP unit against the losses of another STP unit, adjustment of business loss brought forward against the profits of current year, etc. Despite several tribunal rulings on these issues, the tax office and taxpayers continue to be at loggerheads with each other.

A suitable clarification on the issues outlined above will provide much-needed respite to the industry.

Amid the benefit of the tax holiday enjoyed by the industry, the various tax controversies have played spoilsport. India can well be described as the land of litigation, what with at least 70,000 cases pending before the Income-tax Appellate Tribunal. The several issues described above have only contributed to this perilous situation. The need of the hour is for the government to come out with appropriate amendments/clarifications on these issues. Further, extension of the tax holiday under section 10A/10B would provide a major boost to this industry, enabling India to truly become a global IT superpower.

Himanshu Parekh is executive director and Ashish Agrawal is manager at PricewaterhouseCoopers.