A notification from the Indian Finance Ministry to a tax board exempts crude oil paid for in rupees from local taxes, meaning New Delhi has cleared the way for oil refineries to take on more Iranian oil.
"This notification shall be deemed to have come into effect from the first day of April, 2012, and shall, accordingly, apply in relation to the income of the assessment year 2012-13 and the subsequent years," a ministry statement was quoted by the Press Trust of India as saying.
New Delhi has faced difficulties in paying for the crude oil it purchases from Iran because of financial pressure exerted on Tehran by governments wary of its nuclear ambitions.
India was one of the countries named last week by U.S. Secretary of State Hillary Clinton as shielded from pending sanctions because of a decision to "significantly" cut back on Iranian crude oil purchases.
New Delhi aims to import around 113 million barrels of oil from Iran this fiscal year, down from the 127 million barrels imported last year, the Indian news service reports.
The exemption, said the country's finance minister, was in the "national interest."