Union Budget 2017: Tax relief on local oil sales by foreign firms

India proposed on Wednesday exempting foreign firms from paying income tax on the local sale of oil on the ending of a strategic storage contract with the government, with a view to attracting more interest in leasing such facilities.

India, hedging against energy security risks as it imports most of its oil needs, is building emergency storage in underground caverns at three sites to hold 39 million barrels of crude, or about 10 days of its average daily oil demand.

The world's third biggest oil consumer will build two more strategic petroleum reserves (SPR) in the eastern state of Odisha and northwestern state of Rajasthan to take overall capacity to about 112 million barrels, Finance Minister Arun Jaitley said in his budget speech on Wednesday.

So far a tax exemption was available on sale of oil from the SPRs during the duration of the contract.

The tax exemption will be applicable from the financial year beginning April 1, 2018.

Abu Dhabi National Oil Co (ADNOC) last month agreed to lease half of an underground crude oil storage facility at Mangalore with 6 million barrels of oil. The supplies under the deal would begin in the last quarter of 2017.

"Tax exemption on the sale of leftover crude oil stock will encourage foreign companies to invest in setting up Strategic Reserves in India," Oil Minister Dharmendra Pradhan said in a tweet.