A move by the income tax department to levy additional tax on ONGC [Get Quote] for giving huge subsidies to the oil marketing companies has been shelved.

Last year, ONGC paid a subsidy of Rs 22,000 crore (Rs 220 billion). During the last two quarters in the current fiscal, it has already paid a whopping subsidy of Rs 22,474 crore (Rs 224.74 billion) to the OMCs.

"We are not going to tax ONGC's subsidy part," a top income tax department official said in Dehra Dun on November 17. The move follows ONGC's appeal to the department that it should not be taxed on the subsidy.

ONGC, which pays its tax in Dehra Dun where its headquarters are located, said in its plea that subsidy discounts reflect heavily on the company's revenue, reducing the corporate tax paid. On the other hand, the subsidy reduces the input material cost of OMCs' profit and, in turn, increases corporate tax there. "As such, the whole exercise is tax neutral and the revenue of the income tax department is not affected," the plea said.