Govt. Gives The Go-Ahead For IT SEZs’ Floor-Wise Denotification

In a positive development for owners and operators of office parks nationwide, the central government has approved a significant amendment to the Special Economic Zones (SEZ) Rules, 2006, allowing partial and floor-wise denotification of these zones.

Under the Special Economic Zones (Fifth Amendment) Rules, 2023, the Board of Approval can, upon request from a developer of an Information Technology (IT) or IT-enabled services (ITeS) SEZ, authorise the demarcation of part of the built-up area as a non-processing area. This non-processing area is designated for operations of businesses engaged in IT and ITeS.

However, it’s important to note that the demarcation will be limited to a complete floor, and part of a floor cannot be designated as non-processing, according to a notification issued by the Department of Commerce.

The Board of Approval will only grant demarcation after the repayment, without interest, of tax benefits related to the non-processing area. This includes social and commercial infrastructure intended for use by both processing and the proposed demarcated area.

As of now, operational office stock in IT SEZs across the country exceeds 196 million sq. ft, with approximately 35 million sq. ft vacant, representing a vacancy rate of 17.8%, according per recent data.

The amendment is expected to allow developers to lease the non-processing area to IT companies not engaged in export activities, potentially reducing vacancy levels at their office complexes.

Despite ongoing discussions, the demand for office leasing has slowed due to a global economic slowdown affecting major multinational corporations, particularly in the technology sector. The change in SEZ rules, particularly regarding floor-wise demarcation, is expected to support and stimulate demand in the market.

The demarcation of non-processing areas is anticipated to attract Indian and multinationalcompanies, enhancing India’s business environment. However, the amendment specifies that demarcation won’t be allowed if it reduces the processing area to less than 50% of the total area or falls below specific thresholds in different categories.

This move is seen as a response to the evolving market, ensuring that the commercial real estate industry aligns with the changing needs of businesses. It is likely to bring together businesses focusing on both the export and domestic markets under one roof, fostering higher occupancies and value for all stakeholders.

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