Tax clarity on crude oil, natural gas likely soon

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The government will shortly come out with a clarification that production of crude oil will continue to enjoy tax benefits under Section 80-IB(9) of the Income Tax Act. Alongside, a clear view on whether natural gas would also qualify for similar tax benefits will be taken shortly by the Cabinet.

On the directions of the Prime Minister Manmohan Singh, the petroleum ministry has started consultations with the ministries of law and finance to bring out a Cabinet note seeking clarity on the definition of “mineral oil.” The note will also take the Cabinet’s stamp that crude oil would continue to be given the tax benefits under Section 80-IB(9).

Officials revealed that at a meeting chaired by the Prime Minister last week, with the ministers of finance and petroleum, it was decided that it would be in the interest of the government to take a clear view on natural gas before bids for Nelp-VII are received, else the bidders are likely to take a cautious view and the bids will be depressed.

On its part, the petroleum ministry has already extended the last date for bidding for 57 blocks by another 15 days to June 30.

The Finance Bill, in order to define “mineral oil”, excluded natural gas for the purpose of enjoying tax holiday under Section 80IB(9). Sources said the finance minister explained to the Prime Minister that “these notes do not have any legal effect” and the income tax department has been allowing the benefit to production of petroleum i.e. crude oil, but not to the production of natural gas.