The exemption, put in place December 28 but backdated to November 5, will allow Indian refiners to settle about $1.5 billion of outstanding payments to NIOC. Those have been building up since Tehran was put under stringent US sanctions in early November, Reuters reported.
The two countries on Nov. 2 signed a bilateral agreement to settle oil trades through an Indian government-owned bank, UCO Bank (UCBK.NS), in the Indian currency, which is not freely traded on international markets.
However, the income of a foreign company that is deposited in an Indian bank account is subject to a withholding tax of 40 percent plus other levies, leading to a total take by the authorities of 42.5 percent.
That made the agreement unworkable for Iran and led to the freeze in payments by the refiners until the exemption could be introduced.
Iran will be able to use the rupee funds for a range of expenses--including imports from India, the cost of its missions in the country, direct investment in Indian projects, and its financing of Iranian students in India, according to another government document reviewed by Reuters. It can also invest the funds in Indian government debt securities.
“In the previous round of sanctions Iran was allowed to use funds for imports from India but this time we have expanded the scope for use of funds to benefit both nations,” said an Indian government official, who declined to be named because of the sensitivity of the issue.
The move may help India fix its trade balance, which is currently tilted in favor of Iran.
The tax exemption order, though, only refers to crude oil. That means it does not apply to imports of other commodities, such as fertilizer, liquefied petroleum gas and wax.
“Passing of this notification eases constraints for Indian refiners to make payment,” said Sanjay Sudhir, joint Secretary in India’s oil ministry.
An official from India’s top refiner and Iran’s top customer in the country, Indian Oil Corp (IOC.NS), said his company would start making payments to Iran from January.
Last month, the United States introduced the sanctions aimed at Iran’s economy. Washington did, though, give a six-month waiver from sanctions to eight nations, including India, and allowed them to import some Iranian oil.
8072**2050
Follow us on Twitter @IrnaEnglish
Tehran, Dec 31, IRNA -- India’s finance ministry has exempted rupee payments made to the National Iranian Oil Co (NIOC) for crude oil imports from a steep withholding tax, according to an Indian government order.
