India has exempted rupee payments for oil imports from Iran from income tax, opening a mechanism for refiners to settle part of their oil trade with the sanctions-hit country.
Rupee payments to the National Iranian Oil Co (NIOC) for imported crude oil have been exempted from the 40-per cent withholding tax through an amendment to the Income Tax Act.
This allows Iran to park the rupee receipts for crude with Indian banks in India.
From 1 April 2012, Iranian rupee balance, amounting to around $6 billion will be tax exempt, according to the Finance Bill presented in Parliament by finance minister Pranab Mukherjee yesterday.
With the European Union countries forcing sanctions on Iran, the move would allow the two countries to trade in rupee for at least 45 per cent of the oil that India imports from Iran.
Now that the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a Brussels-based co-operative has expelled as many as 30 Iranian financial institutions, including the country's central bank, from its secure network, the current Indian payment mechanism through Turkey will also falter and the two countries will have to lean solely on the rupee payment mechanism.