WFH norm creates tax challenges for SEZs, clarification expected in Budget

The Covid-induced work from home (WFH) norms at workplaces has presented special challenges even for the government to mould tax regulations that take note of the new norm.

One such issue is coming in the IT and ITeS sectors, who have become the flagbearers of the country's resilience to the pandemic, growing both their operations and revenues even during the current difficult period.

The pandemic-induced WFH has created doubts over the continuation of income tax holiday extended to IT and ITeS units operation from Special Economic Zones (SEZ) as the current functioning of staff is akin to employees delivering services virtually from their home location and not from the SEZs.

"There is a need to clarify whether services delivered by employees of SEZ-based IT-ITeS units, virtually from their home location, shall be eligible for the income-tax holiday. This would not only ensure that future litigation is minimised but also provide some elbow room to the sector to drive higher operational efficiencies," said Naveen Aggarwal, Partner, Tax, KPMG in India.

While the tax officials said that this issue should not be a concern as the department is constantly working to see that pandemic-induced disruptions do not impact the functioning of businesses, sources said that clarification over the treatment of services rendered from work from home in case of IT and ITeS companies may come in Budget 2021-22.

This would provide big relief to companies operating in the sector where WFH had almost acquired levels of permanency. Some organisations have announced long term plans on WFH while a few have already made this arrangement permanent.