Changes to the Direct Tax Code (DTC) Bill introduced in the parliament last week should retain the attractiveness of (new) Special Economic Zones (SEZs) for both developers and tenants at least for the next 3-4 years.
Profit-linked tax exemption (100% for a block of 10 years in the first 15 years) for developers for SEZs notified before April 1, 2012.
Profit-linked tax exemption (100% for the first five years, 50% for the next five years, and 50% of invested profits for a further five) for tenants (such as IT companies) commencing operations before April 1, 2014 (April 1, 2011 in earlier draft).
One disappointment was not in the original draft – imposition of Minimum Alternate Tax (MAT) at 20% for both tenants and developers. MAT credit can be offset over ensuing 15-year period.
The new proposals in the DTC Bill should address industry concern about the invested capital, such as land acquisition, in (small format – 10-50 hectare) SEZ projects and should ensure better occupancy. Large format (a few thousand acres) SEZs (e.g., Worldcity Jaipur) could face challenges beyond the medium term to attract tenants, if these rules remain unchanged.
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