For attracting investors to special economic zones, the Direct Taxes Code, which is expected to replace the Income Tax Act from the next fiscal, should extend investment-linked tax benefits to such units as well, analysts point out.
SEZ is specifically mentioned in the Twelfth Schedule of the draft Direct Taxes Code for the purpose of investment-linked deduction. But the deduction, which is only for SEZ developers, needs to be extended to new SEZ units to make them eligible for investment-linked deductions, Neeru Ahuja, tax planner with audit firm Deloitte India, said in Mumbai.
"The revised DTC draft questions the existence of the very idea of SEZs," she said.
There seems to be a conflict of interest in the union ministry over the allocation of tax holidays to SEZs, she said.
While the ministry of commerce wants tax holidays to be retained for SEZs, the ministry of finance doesn't want to offer any tax holidays, Ahuja said.
"We expect one more correction before the drafts go to Parliament," she said.
The present draft does not allow tax holidays for any unit coming up in SEZs after 31 March 2011 and only SEZ developers are exempted from it.