FinMin exempts rupee payment for Iran oil from local taxes

"I believe the notification has been issued," a source at an oil company said.

India will pay 45 per cent of the value of its oil exports from Iran in rupees. The rest will continue to be paid in euros through a bank in Turkey.

"The money will be routed through Uco Bank. When ever the next bill is raised, oil companies will deposit the rupee equivalent of the value of oil in the Uco bank which will then transfer it to the designated bank of the Iranian central bank," he said.

Oil companies will not be required to open any account in Uco bank.

Finance Minister Pranab Mukhejree had in his Budget for 2012-13 exempted payments to Iran from taxes in "national interest".

It was feared that the money paid to National Iranian Oil Co (NIOC) may be considered as income generated by Iranian firm in the country and liable to be taxed. The withholding tax was up to 40 per cent, which neither NIOC or the Indian refiners wanted to pay.

Iran is India's third largest crude oil supplier accounting for for less than 10 per cent of its total crude oil imports. Despite Western sanctions, New Delhi is keen to retain Tehran as its key supplier but has faced problems paying for oil imports.

New Delhi will import 15.5 million tons of crude oil from Iran this fiscal, down from 17.44 million tons of the previous year. MORE