In a move that is bound to bring cheers to exporters, facilitate clearance of Rs.1,500-crore backlog of payments and give fillip to trading activity with Iran, the Union Finance Ministry, on Monday, issued a notification exempting payments made for imports from any local tax.
The move is bound to enhance economic engagement with Tehran in the coming months. The move is not only going to facilitate further purchase of crude oil but also give exporters and businesses in both countries access to each other’s markets.
The notification, under Section 10 (48) of the Income-tax Act related to tax exemptions in regard to foreign oil companies selling crude oil in India, has notified the National Iranian Oil Company (NIOC) 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,” the notification issued by the Central Board of Direct Taxes (CBDT) said.
New payment system
Under the new payment system agreed between the two countries, Indian importers of Iranian crude oil can make 45 per cent of their payments in rupees, which Iran will park in a local bank and use it to settle payments to Indian exporters.
Oil marketing companies and exporters had expressed fear that money paid to NIOC might be considered as income generated by the Iranian firm in the country and liable to be taxed.
The withholding tax was up to 40 per cent. Iran is India’s third largest crude oil supplier, accounting for less than 10 per cent of its total crude oil imports.
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 U.S. or European exposure and its overseas presence is limited to Hong Kong, Singapore and China.