NEW DELHI, June 18: In order to facilitate purchase of crude oil from Iran, the Finance Ministry has issued a notification exempting payments made in Indian rupee for such imports from any local tax.
The notification, under Section 10 (48) of the Income Tax Act, related with tax exemptions in regard to foreign oil companies selling crude oil in India has notified the National Iranian Oil Company has as a “foreign company”.
“This notification shall be deemed to have come into effect from the first day of April, 2012, and shall, accordingly, apply in relation to the income of the assessment year 2012-13 and the subsequent years,” it added.
The notification, issued by the Central Board of Direct Taxes (CBDT) in the Finance Ministry, clears the way for oil refiners to pay Iran in rupees.
As per an agreement, India will pay 45 per cent of the value of its oil exports from Iran in rupees. The rest will continue to be paid in euros through a bank in Turkey.
Finance Minister Pranab Mukhejree had in his Budget for 2012-13 exempted payments to Iran from taxes in “national interest”.
It was feared that the money paid to National Iranian Oil Co (NIOC) may be considered as income generated by Iranian firm in the country and liable to be taxed. The withholding tax was up to 40 per cent, which neither NIOC or the Indian refiners wanted to pay.
Iran is India’s third largest crude oil supplier accounting for for less than 10 per cent of its total crude oil imports. Despite Western sanctions, New Delhi is keen to retain Tehran as its key supplier but has faced problems paying for oil imports.
India will import 15.5 million tons of crude oil from Iran this fiscal, down from 17.44 million tons last year.
India currently pays about USD 1 billion a month through a Turkish bank but there are fears that US and European sanctions against Iran may block even this route.
As a way out, rupee payments have been agreed to.
Under the mechanism agreed, NIOC will accept 45 per cent of the payments in an account opened in Kolkata-based UCO Bank. UCO Bank has been chosen because it has no US or European exposure and its overseas presence is limited to Hong Kong, Singapore and China.
Without sanctions waiver, imports from Iran could come to a halt as shippers have refused to transport oil without an insurance cover.
India is the world’s fourth-largest oil importer and second biggest customer of Iran. (PTI)