India mulls continuing 7-year income tax holiday

Shirish Nadkarni
OGJ Correspondent

MUMBAI, Apr. 28 -- India's finance ministry is seriously considering whether to continue giving a 7-year income tax holiday to companies producing oil and gas. The exemption had been withdrawn by Finance Minister P. Chidambaram during his 2008-09 budget speech Feb. 29.

The continuation of the tax holiday would come as a relief to oil and gas companies, which have invested vast sums in exploration for hydrocarbons even with the 7-year tax holiday.

It also would help the petroleum ministry, which has been promising the tax holiday while marketing the auction of oil and gas blocks under the New Exploration Licensing Policy (NELP). However, the same benefit will not be given to new refineries starting operations after April 2009.

"Petroleum Minister Murli Deora was assured by the finance minister that the tax holiday would continue," said an official of the former ministry.

The proposal to withdraw the income tax holiday had clouded the question of auctioning 57 oil and gas exploration blocks under the seventh NELP round.

However, Petroleum Secretary M.S. Srinivasan has said that the auction would proceed, although the last date for submission of bids has been postponed again to May 23 without any official reason given for the extension. The original deadline of Apr. 11 had been moved back to Apr. 25.

Investments worth $3.5 billion are projected under NELP-VII. Reliance Industries is spending nearly $8.8 billion to develop its D6 block in the Krishna-Godavari basin off the coast of Andhra Pradesh. The company plans to produce 80 million cu m/day of gas from the block—a figure equal to the total gas availability in the country at the moment.