The commerce ministry has recommended that the finance ministry clarify that in calculating the export profit of a special economic zone unit, the total turnover of the assessee should be replaced by the total turnover of the unit located inside the zone.
The proposal, if implemented in the forthcoming Budget, will lead to higher level of income-tax exemption to many SEZ units.
"The commerce ministry has taken up the issue with the finance ministry in the Budget consultations," an official source said.
Currently, Section 10 AA of the Income Tax Act makes an SEZ unit eligible for 100 per cent deduction on profits from export-related activities in the first five years of its operation.
In the formula of calculating the export profit, the present guidelines take into account the total turnover of the assessee, who owns the unit.
As a result, many SEZ units, whose holding companies have units in the domestic tariff area, get lesser level of income-tax exemption.
The commerce ministry has pointed out that the Central Board of Direct Taxes had issued a clarification in the Finance Act of 2000, in which the total turnover of the export-oriented units, which also enjoy a slew of tax exemptions, would be taken into account while calculating export profit.
These consultations come in the backdrop of finance ministry proposals of doing away with income-tax breaks to SEZ developers.
According to sources, the finance ministry had put up the proposals with the empowered group of ministers on SEZs, which is headed by External Affairs Minister Pranab Mukherjee.
