EXECUTIVE SUMMARY

The Government of India, through the Department of Commerce, Ministry of Commerce and Industry, has on 14 July 2022 notified an amendment to the Special Economic Zones Rules, 2006 (SEZ Rules), introducing a new rule setting out a framework for units in a special economic zone (SEZ) to allow their employees to work from home or anywhere outside of the SEZ (WFH). Under the new framework, SEZ units must obtain permission from the Development Commissioner (DC) to implement WFH for their employees, and it also prescribes the categories of employees eligible for WFH, validity of such permission, and the maximum number of WFH employees at a time.

BACKGROUND

Prior to this amendment, the SEZ Rules did provide for WFH under Rule 43 on a temporary basis, but did not envisage working remotely on a fulltime basis. In view of the disruptions over the past few years due to the COVID-19 pandemic, industry groups had sought clarity from the Ministry of Commerce and Industry on whether WFH can be enabled on a permanent or long-term basis for companies operating out of SEZs. The Department of Commerce thereafter held several rounds of discussions with various stakeholders before notifying the amendment inserting Rule 43A in the SEZ Rules, which also removed the existing WFH provisions under Rule 43.        

KEY FEATURES

Employees eligible for WFH:

The following categories of employees (including contractual employees) of an SEZ unit are eligible for WFH, to carry out work that is as per the services approved for the given unit and related to a project of the unit:

Employees of Information Technology and Information Technology enabled Services (IT / ITeS) units;
Employees who are temporarily incapacitated;
Employees who are travelling; and
Employees who are working offsite.

Procedure for obtaining WFH permission:

Units seeking WFH permission under Rule 43A must submit a written proposal to the DC containing the terms for WFH, including the starting date, and the details of the employees to be covered by such permission. The proposal must be submitted at least 15 days in advance, except when seeking WFH for employees who are travelling or temporarily incapacitated. As a transitional provision, SEZ units with employees who are WFH as of 14 July 2022 have been given 90 days, i.e., till 12 October 2022, to submit their proposal for continuation of WFH.

Validity of permission:

The DC may grant permission for WFH for a period of one year, which is extendable for one year at a time subject to submission of an extension application at least 15 days in advance.

Maximum number of employees permitted to WFH:

Not more than 50% of the total employees, including contractual employees, of the SEZ unit can be covered in a WFH proposal, though the DC has the authority to approve a higher number of employees for any bona fide reason to be recorded in writing.

Separate permission required to provide equipment for WFH:

SEZ units may provide equipment and secured connectivity to employees covered under WFH, but require the prior permission of the specified officer for the SEZ to temporarily remove such goods from the SEZ without payment of duty or tax. The validity of such permission granted by the specified officer would be coterminous with the WFH permission granted by the DC.

TAKEAWAYS

The amendment to the SEZ Rules now provides for a more prescriptive framework for WFH, but there are yet some aspects on which further clarity may be required. For example:

• Though the new framework enables IT / ITeS companies located in SEZs to hire employees to work remotely on a full-time basis, it is not clear whether this can also be applied to enable a hybrid model, i.e., if SEZ units would have the flexibility to seek permission for certain teams to WFH on certain days, provided that the total number of employees who are WFH on any given day does not exceed 50%.
• While the separate permission from the specified officer for removal of equipment from the SEZ would be coterminous with the WFH permission granted by the DC, the rule does not clarify whether at the time of seeking extension from the DC, a separate extension application would need to be submitted to the specified officer.

While the DC may have the discretion to deal with such issues, it remains to be seen whether the government will issue any clarifications or guidelines, so as to ensure uniform practices are followed across SEZs.