In a big sigh of relief to Information technology and IT-enabled services (ITeS) sectors firms, the government has permitted these firms to transfer or redeploy up to 50% of manpower from existing units to new ones in special economic zones (SEZs) without losing any tax benefits.
The Central Board of Direct Taxes (CBDT) has notified that mere transfer or redeployment of technical manpower from an existing unit of a taxpayer to a new SEZ unit in the first year of commencement of business will not be construed as splitting up or reconstruction of an existing business, provided the number of technical staff so transferred does not exceed 50% of the total manpower actually engaged in developing software at any point of time. Earlier, the limit of technical staff transferred was set at much lower at 20%.
The government decision came after intense pressure by the industry body Nasscom seeking clarity over the availability tax benefits to the IT companies that have set up parallel operations in SEZs to take advantage of profit-linked exemptions available under the policy.
Section 10AA of the Income Tax Act, 1961 provides tax benefit to a unit set up in a SEZ if the revenue is generated from exports of computer software or from providing ITeS. However, this tax exemption is not available till now if the unit is formed by transfer of used plant or machinery or splitting or reconstruction of an existing business.