The Finance Ministry will shortly issue the much-awaited notification granting oil companies exemption from withholding tax on payments to Iran for oil imports in rupees.

Confirming this, official sources told Business Line that the President, Ms Pratibha Patil, has given her assent to the move. The Government has also received the required undertaking from the National Iranian Oil Company (NIOC) to go ahead with the operationalisation of the rupee payment mechanism.

According to the payment mechanism, Indian oil refiners can pay up to 45 per cent of their oil imports from Iran in rupees. Iran will then deposit this amount in a separate account and utilise the money to import from India and make payments to the Indian exporters concerned.

However, the payment mechanism was hampered by the withholding tax component. Neither NIOC nor the Indian oil companies were ready to shell out the withholding tax component and the amount to be treated as income made by Iranian companies in India.

The notification will have a provision to specifically exempt the income of a foreign (Iranian) company received in rupee in India on account of crude oil sale, but subject to Government nod. This in turn means the oil companies do not have to deduct withholding tax, thereby smoothing the rupee payment mechanism.

Though the Government had made the announcement regarding the withholding tax waiver in the latest Union Budget, inter-ministerial deliberations on the operational details delayed the notification.

The delay meant that Indian oil companies were unable to deposit money in the account (for the rupee payment mechanism) operated by UCO Bank. The amount pending on this count so far is around Rs 1,500 crore, trade sources said.

This in turn affected payment settlements to Indian exporters by Iran.

> arun.s@thehindu.co.in

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