IT SEZs must wait for 100% tax exemption

IT may be a long wait for IT SEZs which are looking forward to a review of section 10AA (7) of the Income Tax Act for enjoying 100% tax exemption on profits.



The empowered group of ministers (eGoM) on special economic zones (SEZs), which met on Thursday, has not only deferred a decision on the need for a review, it is also now clear that a change in the section can only happen through an amendment to the Act. Since the Act can be amendment only by Parliament, any change in the current provisions could take several months.



Section 10 AA (7) of the Income Tax Act states that only a proportion of profits of a SEZ unit, based on the proportion of export sales from the unit to the total turnover of the parent company, will be exempt from taxation.



Under the SEZ Act, profits earned by the unit are 100% tax-exempt in the first five years and 50% tax-exempt for the next five years. Units are also eligible for 50% tax exemption on reinvested profits for another five years. “Section 10AA (7) is an aberration and that needs to be corrected