The government on Monday proposed to give income tax exemption to foreign companies for storing and selling oil to local refiners, a move that could spur interest from global oil producers in leasing the country's strategic petroleum reserve (SPR) facilities.

India, the world's third-biggest oil importer and one of the few major economies still seeing strong demand growth, is building up SPR facilities in southern India to hold 36.87 million barrels of oil.

The tax exemption will be applicable from the financial year beginning April 1, provided the foreign company enters into an agreement with the federal government or the arrangement is approved by the government, the government proposed in its annual budget.

Oil Minister Dharmendra Pradhan recently said the United Arab Emirates is keen to use half of the 1.5 million tonnes, or about 11 million barrels, facility at Mangalore.

Previously global oil major Royal Dutch Shell and national oil companies of Kuwait, Saudi Arabia and Iran had also showed interest in leasing the facilities, but shied away from signing any deal due to income tax and state levies such as sales tax.

It was not immediately clear if the state levies will also be abolished to bring local sales on a par with transactions taking place outside India, where the seller has no Indian tax liability.

The 9.75 million barrels Vizag facility in Andhra Pradesh has already been filled with Iraq's Basra oil, while two facilities at Mangalore and Padur in Karnataka are expected to be completed by March and May.