Exempt from tax: Foreign companies storing oil in India's 'strategic reserves'

Exempt from tax: Foreign companies storing oil in India's 'strategic reserves'
After exempting foreign companies, the Budget 2020-21 has exempted the income of Indian Strategic Petroleum Reserves Ltd (ISPRL) from taxes on transaction of crude oil stored in the underground caverns it built as country's strategic stockpile. In 2017, the government had exempted foreign companies from paying income tax on the sale of oil they store in India's strategic oil reserves.

According to a budget 2020-21 document, the income of ISPRL will be exempt from taxes on the transaction of crude oil stored in its strategic caverns, provided the company replenishes the removed fuel within three years.

Tax changes on ISPRL will be effective April 1.

The then Finance Minister Arun Jaitley had in his Budget for 2017-18 exempted income of a foreign company, which books capacity in the strategic storages, from the sale of leftover stock.

Prior to that, exemption from payment of income tax was available only during the duration of the contract a company entered into for hiring the storage caverns.

The Budget also abolished import tax on very low sulphur fuel oil (VLSFO) used by ships to reduce costs for local shipping companies.


This relief is in line with exemptions offered to other bunker fuels.

Also, the import tax on calcined petroleum coke, used by aluminum makers to make anodes, will be reduced to 7.5 per cent from 10 per cent earlier.

These tax changes took effect from Sunday.

In a bid to insulate the country from volatility in the global oil market, India has built underground storages in rock caverns at Visakhapatnam (1.33 million tonnes), Mangalore (1.5 MT) and Padur (2.5 MT). Two more underground crude oil storages at Chandikhol in Odisha and Bikaner in Rajasthan, with a combined capacity to stock 12 million tonnes of oil, are planned to be built.

Strategic storages provide a country with a two-fold advantage. Firstly it ensures utilisation of reserves in times of high oil and gas prices and secondly, they can be used in the event of supply disruptions following unforeseen events like a natural disaster or a war-like situation.

The storage at Chandikhol will be an underground rock cavern while the one at Bikaner will be an underground salt cavern.

UAE's national oil company ADNOC and Saudi Aramco have signed agreements to hire capacity in India's maiden strategic oil storages.

India is 83 per cent dependent on imports to meet its crude oil needs.

Under the agreements, India will have the first right to use the stored oil in case of an emergency, while ADNOC and Aramco would use the facility to store oil for trading purposes. ANZ MKJ