Our tax law generously speaks of a 100 per cent tax holiday, but it may turn out to be a mere theoretical benefit, fears Mr Bharat Varadachari, Tax Partner, Ernst & Young. "The issue is with the formula for computing income-tax deduction with respect to the profits of an SEZ (Special Economic Zone) unit under Section 10AA of the Income-Tax (I-T) Act, 1961," he explains, in the course of a recent e-mail interaction with Business Line. "Based on the plain text of the formula, it appears that companies that have established SEZ units in the same legal entity that houses other businesses/units may not be able to fully realise the income-tax deduction," Mr Varadachari elaborates. "If this were the result, it means that one of the stated fundamental objectives of the SEZ policy framework, which seeks to grant tax-free status to exporters, would stand violated."
Excerpts from the interview: