In a significant move that would come as a huge relief to the IT sector, the commerce ministry in a notification on Thursday clarified that IT companies could freely transfer goods from Software Technology Parks of India (STPI) units to special economic zone (SEZ) units.
The notification, which is under instruction No 68 and dated October 28, 2010, follows the earlier notification (instruction No 11) issued by the government in August last year.
The government said the SEZ act did not hinder any movement of goods till the time the companies were willing to forego the tax benefits as laid out in the SEZ Act. ?The only deterrant for transfer of such goods is not getting the exemption under the Income Tax Act when the value of the used goods exceed 20% of the total capital goods installed by the unit in a year,? the notification said.
Following the earlier notification issued last year, several IT companies, in a bid to centralise their operations, wanted to shift units under one roof to an SEZ, which was refused by some development commissioners. This not only created confusion but it also forced several developers to rethink their SEZ strategies.
Speaking to FE, additional secretary in the commerce ministry DK Mittal said, ?For consolidation purpose, if companies want to shift capital goods to SEZs, it is fine. But we will not allow companies to avoid tax benefits by moving machinery just because there operations are spread across five units,? he said.
Partner at BMR Advisors Kalpesh Maroo said the move by the government would provide relief to both the developers and IT companies. ?The clarification has come at a very crucial time because the IT companies are in a growth stage. IT companies purely from an operational standpoint wanted to consolidate their operations under one roof and in the process also willing to let go of the tax benefits,? he said.
President of apex IT body Nasscom Som Mittal sighed relief following the notification. ?SEZs are primarily for new businesses and there were a lot of operational issues which were not being resolved previously. However, we are happy that now the government is simplifying the transfer of assets and goods into SEZs. This will reduce operational hurdles and overhead costs for IT companies,? he said.