The government of India 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 notification.
The finance ministry in a December 28, 2018 notification said the National Iranian Oil Company (NIOC) will not have to pay any withholding tax on payments it gets from Indian refiners. On 2 November, 2018, India had 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. The notification comes into effect from the 5 November 2018.
This will help clear close to $2 billion of payments Indian refiners are holding for oil they bought from Iran during November and October last year.
The rupee pact was signed following the US letting India and seven other nations to keep buying Iranian oil despite sanctions being re-imposed on the Islamic state on November 5, 2018.
Indian refiners will make rupee payments in a UCO Bank account of NIOC. Iran can use these funds to pay for imports of food grains, 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, down from 22.6 million tonnes bought in the 2017-18 financial year, sources said.