MoF: Submission requesting for amendment to Income Tax Act, 1961 and clarification under GST to enable work from home for Units operating in SEZs

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MoF: Submission requesting for amendment to Income Tax Act, 1961 and clarification under GST to enable work from home for Units operating in SEZs

Tejasvi

@tejasvi

January 28, 2021

Public Policy

355

Given the available technologies and an impetus from the COVID-19 pandemic, IT-ITES industry is embracing a blended working model with both work from office and work from home as a permanent feature. Considering this, the Department of Telecom has on November 5, 2020 made significant changes to the OSP terms and conditions and enabled the industry to work remotely. On the same day, the Hon’ble Prime Minister Shri Narendra Modi has lauded these reforms and given a call for making India a tech hub and had said that the Government is committed to doing everything possible to ensure a conducive environment for growth and innovation in India.

For the proposed reforms to be holistic, there is a need for certain changes, clarifications with respect to the Income Tax Act, 1961 and the Goods & Services Tax (GST) laws. In this regard, NASSCOM has made a detailed representation to Ministry of Finance on January 19, 2021 requesting MoF to consider the following suggestions:

Provide that services rendered by SEZ employees while working from home will be treated at par with as such services are rendered from SEZ under S. 10AA of Income Tax Act, 1961
S.10AA (1) of the Income Tax Act, 1961 provides that income tax exemption from profits will be available for a period of 15 years if a company carries on business operations from its unit. Further, Explanation 1(ii) to S.10AA defines “Export” to mean “taking goods or providing services out of India from a Special Economic Zone by land, sea, air, or by any other mode whether physical or otherwise.”

In order to give effect to provisions of SEZ Rules to enable WFH on long term and to avoid litigation on eligibility of S.10AA of Income Tax Act, we have requested Ministry of Finance (MoF) to issue a clarification by way of an Explanation to S.10AA of Income Tax Act, 1961. As the introduction of
Explanation in the Income Tax Act, 1961 would require an amendment in the law, we have also requested MoF to take up this matter on priority and issue the clarification through Finance Act 2021 in the upcoming Union Budget 2021-22.

Clarify that units will be eligible to claim benefit of zero-rating benefit under Goods & Services Tax (GST) in case of purchase of assets and direct dispatch to employee’s place
Conjoint reading of Rule 30 of SEZ Rules, 2005, S.16 of Integrated Goods & Services Tax, 2018 (IGST Act) and Rule 89 of Central Goods and Services Tax Rules, 2017 (CGST Rules) suggest that SEZ unit will be eligible for zero-rating benefit on procurement of goods if the invoice is endorsed by the
authorised officer that goods have been admitted in full into the SEZ, which would be the proof for vendor for claiming refund under GST.

However, with WFH becoming the new normal, there may be cases wherein the duty-free goods may have to be directly consigned to the premises of the employee (e.g. a new joiner or an offsite employee for replacement of asset). Hence, we have requested MoF to issue clarification to ensure that exemption status and ability to claim refund by the supplier is available.

We will keep you posted on further developments in this regard.

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Tejasvi