India exempts rupee payments for Iran oil from hefty taxes

NEW DELHI, Dec 31 (Reuters): 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 a government order reviewed by Reuters.

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 U.S. sanctions in early November.

The two countries on Nov. 2 signed a bilateral agreement to settle oil trades through an Indian government-owned bank, UCO Bank, 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.