Government exempts rupee payments for Iran oil from taxes
New Delhi   02-Jan-2019

The government has exempted rupee payments made to Iran''s national oil company NIOC towards the purchase of crude oil from payment of any tax, according to a Gazette notification. The finance ministry in a December 28, 2018 Gazette notification said the National Iranian Oil Company (NIOC) will not have to pay any withholding tax on payments it gets from Indian refiners. India had on November 2, 2018, signed an agreement with Iran to pay for crude oil it imports from the Persian Gulf nation in rupees. Any income a foreign company receives in an Indian bank account is subject to a withholding tax of 40 per cent, which together with sundry cesses totals to 42.5 per cent. Exempting payments received by NIOC for crude oil it sells to Indian refiners, the notification said the Iranian firm "shall not engage in any activity in India, other than the receipt of income under the aforesaid arrangement".

It said, "the notification shall be deemed to have come into force from the 5th day of November 2018". This will help clear close to USD 2 billion of payments Indian refiners are holding for oil they bought from Iran during November and October. The rupee pact was signed following the US letting India and seven other nations to keep buying Iranian oil despite sanctions were reimposed on the Islamic state on November 5, 2018. Sources said Indian refiners will make rupee payments in a UCO Bank account of NIOC. Iran can use these funds to pay for imports of foodgrains, medicines and medical devices from India, the cost of its missions in the country, direct investment in Indian projects, and financing of Iranian students in India. It can also invest the funds in Indian government debt securities. India had won the exemption after it agreed to cut imports and escrow payments. Under the 180-day exemption, India is allowed to import a maximum of 3,00,000 barrels a day of crude oil. This compares to an average daily import of about 5,60,000 barrels in 2018. India, which is the second biggest purchaser of Iranian oil after China, has since then restricted its monthly purchase to 1.25 million tonnes or 15 million tonnes in a year (3,00,000 barrels per day), down from 22.6 million tonnes (4,52,000 barrels per day) bought in the 2017-18 financial year, sources said.

Two of its refiners -- IndianOil and Mangalore Refinery and Petrochemicals Ltd (MRPL) -- bought 1.25 million tonnes of oil from Iran in November and December. India, the world''s third-biggest oil consumer, meets more than 80 per cent of its oil needs through imports. Iran is its third largest supplier after Iraq and Saudi Arabia and meets about 10 per cent of total needs.