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IT SEZ: Govt allows IT SEZs floor-wise denotification, move likely to help reduce vacancy levels


In a relief to owners and operators of office parks across the country, the central government has allowed partial and floor-wise denotification of special economic zones through a key amendment to SEZ Rules, 2006.

As per the Special Economic Zones (Fifth Amendment) Rules, 2023, the board of approval, on request of a developer of an information technology (IT) or IT-enabled services SEZs, may permit demarcation of part of the built-up area of the SEZ as non-processing area.

This non-processing area can be utilised to set up operations of businesses engaged in IT and ITeS. However, the non-processing area will consist of a complete floor and part of a floor will not be allowed to be demarcated, said a notification issued by the Department of Commerce late Wednesday.

The board of approval will allow demarcation only after repayment, without interest, of tax benefits attributable to the non-processing area, social and commercial infrastructure created to be used by both processing and the proposed demarcated area.


“Most of these IT SEZs are at prime locations and these complexes will achieve full leasing once the new changes kick in,” said Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure. “Government’s revenue is expected to improve with higher GST collection and also owing to the repayment of tax incentives that developers had availed earlier for processing area that gets converted into non-processing now.”Across the country, operational office stock in IT SEZs stood at over 196 million sq ft, of which around 35 million sq ft is vacant, which effectively implies 17.8% vacancy levels, showed data from JLL India.“This move is about keeping up with the ever-changing market and making sure that the commercial real estate industry offers what businesses need,” said Ramesh Nair, CEO, Mindspace Business Parks REIT. “This will help us now bring together businesses that focus on both the export and domestic market, under one roof.”The move is expected to allow developers to lease the non-processing area to IT companies not involved in export activity and reduce the vacancy levels at their office complexes.

“This will help us meet the growing needs of the IT/ITES sector and GCCs, and further diversify our tenant base. It is going to further fasten the achievement of higher occupancies and enhance value for all stakeholders,” said Alok Aggarwal, CEO, Brookfield India Real Estate Trust.

Sigrid Zialcita, CEO, Asia Pacific Real Estate Association (APREA), said this development will garner significant attention from global investors, who are closely observing India’s regulatory landscape, recognising the country’s strategic moves to enhance the business environment.

Demarcation of non-processing area will not be allowed if it results in decreasing the processing area to less than 50% of the total area or less than 50,000 sq meter, 25,000 sq meter and 15,000 sq meter in category A, B, and C, respectively.

“Having flexible options of floor-wise denotification will help leasing to all target segments. The overall vacancy level in India, which is significant due to SEZ vacancy rates, will come down gradually. This move will also encourage F&B and other support amenities to thrive better in SEZ complexes,” said Sunil Pareek, executive director, Assetz Property Group.

As per the amendment, businesses operating in non-operating areas will not be able to avail any rights and facilities meant for SEZ units. No tax benefits will be available on operations and maintenance of common infrastructure and facilities of such IT SEZs.

The vacancy level across key cities is expected to inch upward with several leases approaching expiry soon. Additionally, around 10 million sq ft of SEZ spaces are under construction and set to be completed within the next two years.

The demand for office leasing, primarily driven by major multinational corporations, especially those in the technology sector, has turned sluggish owing to a slowdown in the US and Europe that contributes to office demand in India in a major way.

Although discussions are going on, deal conclusions are taking time owing to a cautious approach in the market. The change in SEZ rules in terms of floor-wise demarcation will help in supporting the demand, experts said.


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