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A PROJECT STUDY ON

TAXES IN PETROLEUM INDUSTRY WITH EMPHASIS ON HINDUSTAN


PETROLEUM CORPORATION.LTD

SUBMITTED TO

SCHOOL OF MANAGEMENT

SRM UNIVERSITY

BY

N.PRABHU(3511010506)

PRACHI DUBEY(3511010507)

P.PRADEEP(3511010508)

R.PRADEEP RAJ(3511010509)

M.S.PRADHAP(3511010510)

PRAMOD MATHEWS(3511010511)

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UNDER THE GUIDANCE OF

K.SANKARAMOORTHY

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FACULTY-SCHOOL OF MANAGEMENT
INTRODUCTION
Tax is to impose a financial charge or other levy upon a taxpayer (an
individual or legal entity) by a state or the functional equivalent of a state such that failure to pay
is punishable by law.
Taxes are also imposed by many subnational entities. Taxes consist
of direct tax or indirect tax, and may be paid in money or as its labour equivalent (often but not
always unpaid labour). A tax may be defined as a "pecuniary burden laid upon individuals or
property owners to support the government a payment exacted by legislative authority. A tax "is
not a voluntary payment or donation, but an enforced contribution, exacted pursuant to
legislative authority" and is "any contribution imposed by government whether under the name
of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name.
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes. For example, some transfers to the public
sector are comparable to prices. Examples include tuition at public universities and fees for
utilities provided by local governments. Governments also obtain resources by creating money
(e.g., printing bills and minting coins), through voluntary gifts (e.g., contributions to public
universities and museums), by imposing penalties (e.g., traffic fines), by borrowing, and by
confiscating wealth. From the view of economists, a tax is a non-penal, yet compulsory transfer
of resources from the private to the public sector levied on a basis of predetermined criteria and
without reference to specific benefit received.
COMPANY OVERVIEW

The petroleum and natural gas sector in India is a sector with much
promise even though it is one of the oldest industrial sectors in existence. With perspective to
the study of taxation it is worth mentioning that India has a hybrid system of PSCs(Production
Sharing Contracts) with elements of royalties as well as sharing of production with the
government. Hence it is with this guideline that all taxation details of a petroleum and natural gas
enterprise be sought.

HPCL-Hindustan Petroleum Corporation Limited

HPCL is a Fortune 500 company, with an annual turnover of Rs. 1,08,599 Crores and
sales/income from operations of Rs 1,14,889 Crores. HPCL operates 2 major refineries
producing a wide variety of petroleum fuels & specialties, one in Mumbai (West Coast)
of 6.5 Million Metric Tonnes Per Annum(MMTPA) capacity and the other in Vishakapatnam,
(East Coast) with a capacity of 8.3 MMTPA.

HPCL has up a Greenfield Oil Terminal at Ennore, located in northern outskirts of Chennai
City. The terminal has tankages of capacity 1,40,000 KL for storage and dispatch of
products of Motor Spirit (MS), High Speed Diesel (HSD), Superior Kerosene Oil (SKO)
and Aviation Turbine Fuel (ATF).
STATEMENT OF PURPOSE
The study has been performed to get an overview of the taxation liabilities being
faced by the Petroleum Industry in India. And as such to assess the various defining characters
by which the taxation slabs are enacted and effected.

As per the purpose and guidelines an overview study of Hindustan Petroleum


Corporation Limited. was performed. The study assesses the taxations faced by the company in
particular on an operational basis and the gradation of taxation criteria. The study also identifies
the characteristic features which form the basis of actuating different kinds of taxes.
TAXATION DETAILS
The study of the selected company provides the following details regarding the taxation
establishment in case of a petroleum company with emphasis on Hindustan Petroleum
Corporation Ltd.

>ROYALTIES (Under New Exploration Licensing Policy)

The royalties to be paid by the company are listed out as follows

1.Crude Oil : 12.5%

2.Natural Gas : 10%

Shallow Water Offshore Areas:

Crude Oil & Natural Gas :10%

Deep Water Offshore Areas

Crude Oil & Natural Gas : For the first seven years of commercial production 5%
and thereafter 10%

HPCL for its Chennai Ennore Terminal has entered into a PSC (Production
Sharing Contract) with the Government of India to undertake explorative and
production activities (E&P). Income from E&P operations is taxable on a net
income basis. The rates are specified as follows:

FOR NET INCOME UPTO & FOR NET INCOME


INCLUDING INR 10 EXCEEDING INR 10
MILLION MILLION

30.9% 33.99%

MINIMUM ALTERNATE TAX (MAT)

MAT is applicable to the company if the tax payable on its total income as
computed under the tax law is less than 15% of its book profit. If MAT applies , the
tax on total income is deemed to equal 15% of the company’s book profit.

As per the tax laws applicable the following tax incentives are available to the company.

1.TAX HOLIDAY

A seven year tax holiday equal to 100% of taxable profits is available for the company if it is
in current status if it is engaged in the commercial production or refining of mineral oil.

2.CARRYFORWARD LOSSES

Business losses can be carried forward and set off against income for eight consecutive years,
provided the income tax return for the year of loss is filed on time.

3.R&D

Expenditures on scientific research incurred for the purpose of the business are tax deductible.

CONCLUSIVE ANALYSIS
The study of the taxation system in India pertaining to the petroleum industry with
special emphasis on Hindustan Petroleum Corporation Limited has yielded taxation criterions
which are similar to those undertaken under the subject area of business taxation with the initial
basics of Direct and Indirect taxes. However the study also points to taxation systems which are
alien to our area of study but which form a part of the system as well. The study delivers an
overview of taxes in petroleum industry in India but a complete assessment of the same requires
a specialized study with multiple points of industry contact.

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