On transfer of technical manpower upto 50%, deduction u/s 10A/AA cannot be denied.

Mere transfer or redeployment of existing technical manpower to the extent of “50% of total technical manpower actually deployed in new unit” from an existing unit to a new SEZ unit in the first year of commencement of business will not construed as splitting up or reconstruction of an existing business. Hence deduction under section 10A or 10AA of the act cannot be denied.

Earlier, CBDT had issued circular no. 12/2014 dated 18th July, 2014 to clarify that mere transfer or re-deployment of existing technical manpower from an existing unit to a new SEZ unit in the first year of commencement of business will not be construed as splitting up or reconstruction of an existing business, provided the number of technical manpower so transferred does not exceed 20 percent of the total technical manpower actually engaged in developing software at any point in the given year in the new unit.

But the representation have been made by Indian IT industry stating that aforesaid limit of 20% is inadequate and restrictive since it impacts the competitiveness of Indian Software Industry in global market in terms of quality of product and delivery time-lines.

Global competitiveness can be ensured only when highly skilled and experienced manpower is deployed for software development. Request have, therefore, been made seeking enhancement of the limit of 20% in line with the recommendation of Rangachary Committee, which was set up to review the taxation of IT Sector and Development centers.

The matter has been re-examined by the board and it has been decided to increase the extent of transfer or redeployment of existing technical manpower from 20% to 50%.

Further, another option is given to Indian IT industry is that:-

If the enterprise is able to demonstrate that the recruitment of the new technical manpower in all units of enterprise is atleast equal to 50% of total technical manpower of new SEZ unit during such previous year, deduction under section 10A/10AA would not be denied provided the other prescribed conditions are also satisfied.

The above relaxation stated in circular shall be available only for IT and Software Development enterprises.

Refer Circular 14/2014

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