The Union Ministry of Commerce and Industry has relaxed the terms for developers of special economic zones (SEZs) in the IT/ITES space, by giving them greater leeway in using the built-up area within such SEZs for commercial (real estate) purposes. The relaxation is subject to the developers foregoing the tax benefits proportionately, and refunding those availed in the past without interest.
The move follows the grievance expressed by these developers that with the prevalence of work-from-home among IT units in SEZs, each developer is left with under-utilised real estate.
According to a notification issued late Wednesday, demarcation of a portion of the built-up area within an SEZ unit will be permitted on a floor-by-floor basis as a non-processing or non-SEZ area.
SEZ units are eligible for a 15-year staggered income tax holiday, but for a large number of them, the benefits have ended in recent years, because a 2020 amendment to the SEZ Act restricted them to units established on or after April 1, 2005, and before April 1, 2020. For such units, only the neutralisation of domestic indirect taxes is available, as is available to domestic tariff area units as well. So, the developers of SEZs, especially those housing IT/ITES units are finding it increasingly difficult to stay afloat.
Ever since direct tax breaks were removed for new units in SEZ in March 2020, they became less attractive for tenants and vacancies have been high, industry sources said. About 170 million square feet of ready IT SEZ office space is present across the top six cities alone, with nearly 20% (over 30 million sq ft) lying vacant., they added.
Office developers said the move will diversify the tenant base and increase occupancies.
“This will help us meet the growing needs of the IT/ITES sector and GCCs and further diversify our tenant base. These amendments are going to further fasten the achieving of higher occupancies and enhance value for all stakeholders”, said Alok Aggarwal, chief executive officer, Brookfield India Real Estate Trust.
While demand from IT companies has slowed down in the recent past, demand from GCCs is making up for that, experts have said.
Aravind Maiya, Chief Executive Officer, Embassy REIT, said, ”Currently, our SEZ occupancy levels are around 80%, and this amendment will further elevate the attractiveness of our 20 million square feet premium grade-A SEZ office spaces, positioning Embassy REIT on a trajectory towards achieving pre-COVID occupancy levels.
Ramesh Nair, chief executive, Mindspace Busines Parks REIT said the move would help them to bring together businesses that focus on both the export and domestic market, under one roof. “Importantly, it strengthens the appeal of our Grade A workspaces, positioning us as the preferred choice for businesses eyeing operational consolidation.”
The changed norms added that demarcation of a non-processing area shall be allowed if it results in decreasing the processing area to less than 50% of the total area. For category A cities, the minimum built-up processing area should be 50000 square metres; for category B cities, it should be 25000 square meters and for category C cities, it is 15000 square metres.
The amendment to the IT SEZ policy presents a pivotal opportunity for SEZ and non-SEZ entities to coexist harmoniously within a unified campus, fostering a landscape of growth and coalescence, said Sanjay Dutt, managing director of Tata Realty & Infrastructure.
“ This policy revision not only empowers companies to expand their office spaces but also revitalizes the competitive edge and allure of strategically positioned SEZs,” Dutt said.
There are ongoing constructions of about 10 million sq ft of SEZ spaces in the cities other than the top six, slated for completion within the next 2 years, he said.