Indian SEZs Receive Service Tax Exemptions

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Jul. 3 – India’s Ministry of Finance has agreed to exempt service tax charges on developers and units operating within the country’s special economic zones (SEZs). The exemption will be available as a service tax refund for specified services received by units and developers within the SEZs. Taxes levied on services used exclusively for operations in the SEZs will further be eligible for a tax exemption in advance.

The new tax benefit package was announced this week following a ruling by the Karnataka high court to allow the implementation of a minimum alternate tax (MAT) and dividend distribution tax (DDT) on units and developers working within India’s SEZs.

When first introduced the MAT and the DDT faced several petitions from investors. They claimed the taxes were unconstitutionally levied against companies who made investments into the SEZs on the basis of the tax holidays they were offered. The increased tax burden faced by developers in the special economic zones has resulted in the withdrawal of several projects and the delay of many more.

This week’s implementation of the service charge exemption package will relieve some of the burden faced by units and developers working in India’s SEZs and will provide a greater incentive for investors to utilize approved services available for exemption.

To claim a tax exemption, the SEZ unit or developer must receive approval from the Approval Committee on the list of services they wish to claim for tax-exempt or refund status.

For tax-exempt status, the unit or developer must:

  • Submit a declaration of services received exclusively for authorized operations in the SEZ to the Specified Officer of the SEZ in which the services were claimed; and
  • Present to the jurisdictional Superintendent of Central Excise a quarterly report of services claimed for exemption.

For tax refund status, the unit or developer must:

  • Be registered as an assessee under the Central Excise Act, 1944; and
  • File a claim for refund under the jurisdictional Deputy or Assistant Commissioner of Central Excise.

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