Exemption in respect of income of a foreign company on account of storage of Crude Oil in a facility in India and sale of Crude Oil therefrom [Section 10(48A) & 10(48B)]

Exempted Incomes-Section 10(48A-48B)

Section 10(48A) of the Income Tax Act provides an exemption in respect of income earned by a foreign company on account of storage of crude oil in a facility in India and the subsequent sale of crude oil from that facility. This provision aims to encourage foreign investment in the oil and gas sector and promote the development of storage infrastructure in the country.

Under this provision, any income earned by a foreign company from the storage of crude oil in a facility in India and the sale of crude oil from that facility is exempt from income tax. The exemption is available for a period of 10 consecutive years, starting from the year in which the storage facility becomes operational.

To be eligible for this exemption, the following conditions must be satisfied:

  • The foreign company must be a resident of a country with which India has a Double Taxation Avoidance Agreement (DTAA).
  • The storage of crude oil and sale of crude oil therefrom must be pursuant to an agreement or arrangement entered into by the Central Government.
  • The agreement or arrangement must be notified by the Central Government.

The exemption under Section 10(48A) is available for the income of the foreign company from the storage of crude oil in India. The exemption under Section 10(48B) is available for the income of the foreign company from the sale of crude oil from a facility in India.

The exemption under Section 10(48A) and Section 10(48B) is intended to encourage foreign companies to store crude oil in India and to sell crude oil from India. This will help to improve India’s energy security and to reduce its dependence on imported crude oil.

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Here are some examples of cases where the exemption under Section 10(48A) and Section 10(48B) will be available:

  • A foreign company enters into an agreement with the Central Government to store crude oil in a facility in India. The foreign company will be exempt from tax on the income that it earns from the storage of crude oil.
  • A foreign company enters into an agreement with the Central Government to sell crude oil from a facility in India. The foreign company will be exempt from tax on the income that it earns from the sale of crude oil.
  • A foreign oil company enters into an agreement with the Central Government to store crude oil in India’s strategic petroleum reserves. The company sells the crude oil to the Indian government after the expiry of the agreement. The income earned by the company from the storage and sale of the crude oil will be exempt from tax in India under Section 10(48A) and 10(48B).
  • A foreign oil company enters into an agreement with an Indian company to store crude oil in a facility in India. The foreign company sells the crude oil to the Indian company. The income earned by the foreign company from the storage and sale of the crude oil will be exempt from tax in India under Section 10(48A) and 10(48B), provided that the agreement is notified by the Central Government.
  • A US company stores crude oil in a facility in India. The company sells the crude oil to Indian customers. The income earned by the company from the storage and sale of crude oil is exempt from tax in India under Section 10(48A) and Section 10(48B).
  • A Japanese company invests in a strategic oil reserve in India. The company stores crude oil in the reserve and sells it to Indian customers. The income earned by the company from the storage and sale of crude oil is exempt from tax in India under Section 10(48A) and Section 10(48B).
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It is important to note that the exemption under Section 10(48A) and Section 10(48B) is only available for income earned from the storage and sale of crude oil. Any other income earned by the foreign company will be taxable.

Any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall be exempt:

Provided that –

(i)         the storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and

(ii)        having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.

Further, as per section 10(48B), any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil, if any, from a facility in India after the expiry of an agreement or an arrangement referred to in section 10(48A) or on termination of the said agreement or the arrangement, in accordance with the terms mentioned therein, as the’ case may be, shall also be exempt subject to such conditions as may he notified by the Central Government in this behalf.

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