Natural gas may get 7-year tax break

Move To Benefit Gas Producers Such As ONGC & Reliance

THE forthcoming Budget may classify mineral oil as hydrocarbons, thus extending a seven-year tax holiday given to crude oil explorers to producers of natural gas, including ONGC and Reliance Industries.
"The issue is in the knowledge of the finance minister and a decision is expected soon," a Cabinet minister told ET on condition of anonymity.

The move is also expected to generate more interest in the eighth round of bidding for oil and gas exploration blocks under the new exploration licensing policy (Nelp-VIII).
The uncertainty over tax holidays started last year when the then finance minister P Chidambaram proposed to redefine mineral oil in the Finance Bill 2008-09. The bill said the term "mineral oil" does not include petroleum and natural gas. It meant that while crude oil producers could avail a seven-year tax holiday, natural gas producers were out of its ambit.

Later, the finance ministry withdrew the definition of "mineral oil" for the purpose of Section 80-IB(9), stating that the proposed change in the bill was aimed at clearing the ambiguity as different tax tribunals had taken varied positions on the issue. But the situation remained the same and tax holidays were restricted to production of crude oil.
The petroleum ministry had maintained that mineral oil must be defined as hydrocarbon (which can be either crude oil or natural gas or both). It argued that exploration & production was undertaken for hydrocarbon and not for either oil or gas. During the exploration, a company could find oil or gas or both. Therefore, the definition of mineral oil must include both crude oil and natural gas.