IT sector kept out of industrial parks

Move aimed at reducing tax exemptions ahead of Budget 2008-09.

In a move aimed at reducing tax exemptions ahead of Budget 2008-09, the government has said it will no longer permit new information technology (IT) units to be set up within industrial parks and imposed stringent norms for manufacturing units in such parks.

Industrial parks are entitled to income tax breaks till March 31, 2009.

The recently-amended industrial park scheme 2008, notified on January 8, has raised doubts over 350 parks proposed by real estate developers like DLF Ltd, Ansal Properties and Singapore's Ascendas, among others. Most of them involved IT units.

The scheme has also raised the basic infrastructure requirements that industrial park developers must provide. 
 

GETTING TOUGH ON TAX BREAKS
Norms	Industrial park scheme, 2002	Industrial park scheme, 2008
Activities permitted	Wide scope, included infotech and manufacturing sector	Scope cut, excludes infotech, industrial model towns  and growth centres
Minimum developed area	No such condition prescribed	Minimum constructed floor area to be 50,000 sq. mt.
Minimum units	30 units	30 units*
Minimum % of area for industrial use	66% of allocable area	90% of allocable area
Maximum occupancy by single unit in a park	50% of allocable area	25% of allocable area
Tax holiday	Available to original, and subsequent developer	Restricted to original developer
Ownership of industrial park	No such condition prescribed	Industrial park to be owned by only one undertaking
* (All units of a person & associated enterprises to be treated as single unit)

Under the previous scheme, developers had to build infrastructure and lease it to companies that would then complete the development to meet their specific needs. The new scheme mandates the developer to provide a minimum built-up area of 50,000 square metres.

"Manufacturing companies build their factories around their machinery. If developers provide prospective manufacturing units with built-up area, there may not be any takers," said Ajit Krishnan, partner, Ernst and Young.

In addition, the administrative control of the industrial park scheme has been transferred to the revenue department (Central Board of Direct Taxes) under the finance ministry.

Before this, the scheme was jointly administered by the department of industrial policy and promotion (DIPP) under the ministry of commerce and the revenue department.

The industrial park scheme, introduced in 1997, was revised in 2002 and was valid till March 31, 2006.

The finance ministry extended the tax holiday for park developers till March 31, 2009, in Budget 2006-07 and the DIPP circulated a draft industrial park scheme in the same year.

Some observers feel the new changes will not impact manufacturing units that want to come up inside the parks.

"Companies, especially the ones making capital goods, can coordinate with developers while building the built-up area in the park," said Sarita Nagpal, head, manufacturing services division, CII.

There are 273 industrial parks in the country, of which 43 withdrew their applications after the scheme became operational since 1997.