Finance minister Pranab Mukherjee on Monday clarified specific provisions in the hydrocarbon sector to extend income tax relief — currently available on crude oil production — for natural gas producers, but limiting it to the undertaking that holds the block license. His budget also extends the tax exemption to private refineries that start producing products by March 2012 instead of the earlier deadline of April 2009.

In a bid to encourage response to the forthcoming auction of potential oil and gas blocks, the finance minister extended the seven-year tax holiday “to natural gas from blocks which are licensed under the VIII Round of bidding” under the NELP, and begin commercial production on or after April 2009.

Since last year, the petroleum ministry has been demanding a tax holiday for natural gas to trigger interest in the auction of 70 exploration blocks. It postponed NELP VIII roadshows because of the ambiguity that crept in after Budget 2008-09 took out natural gas from the definition of mineral oil.

However, the finance minister has declined to treat each well in an exploration block as a separate ‘undertaking’ for computing tax holiday. “This view is against the legislative intent. For purposes of claiming deduction under sub section (9), all block licensed under a single contract¿.shall be treated as a single ‘undertaking’,” he said, adding that the definition would be applicable retrospectively from April 2000.

Giving impetus to private participation in the refining sector, Mukherjee’s Budget 2009-10 has relaxed the March 2009 deadline saying that the “notice given to private sector entrepreneurs to complete the execution of the refinery project was extremely short” because of which some who had invested substantially suffered serious financial setback. “Therefore, it is proposed to amend the provisions of sub section (9) so as to allow them a further period of three years up to March 31, 2012 to begin refining of mineral and avail the tax benefit,” it says.

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