New Delhi, Aug. 19: The Odisha government has agreed to provide Rs 34,555-crore tax exemption to IOC's Paradip refinery under the new terms of agreement.

A day after petroleum minister Dharmendra Pradhan met Odisha chief minister Navin Patnaik, the state government has agreed to provide a Rs 700-crore interest free loan per annum.

"It is agreed that the state government will give a loan of Rs 700 crore per annum interest free for 15 years. Earlier, the state had agreed to provide total deferment of VAT," Pradhan said in a tweet.

In another tweet, Pradhan said the new agreement would give a substantial amount of additional revenue (around Rs 1,500 crore per year) to the state of Odisha.

"This is a historic day for the people of Odisha; the dwellers of the state have got their dues without spoiling the industrial atmosphere of the state," he added.

Sources said in the latest agreement, the viability gap funding for the Paradip project would be revised to Rs 700 crore per annum, payable in four equal instalments in each quarter in the form of an interest-free loan for 15 years, starting from financial year 2016-17.

IOC will deposit the applicable VAT or GST on the products sold. The Odisha government will pay the viability gap fund in the form of interest-free loan in each quarter. The repayment of the amount will start in the 16th year for each instalment, they said.

The VAT collected and not paid in 2015-16, 2016-17 and 2017-18 will be deposited by IOC immediately. The Odisha government will provide the interest-fee loan for 2016-17 and the three quarters of the current year by December 2017 or January 2018 and every quarter thereafter.

Sources said the state government had also agreed to waive the interest/penalty for the VAT withheld by IOC. A joint petition will be filed in the Odisha high court, informing it about the agreement.

On February 22, the Odisha government had written to IOC, its single-biggest investor, saying it was withdrawing the promised 11-year deferment on payment of sales tax on the products from the Paradip refinery sold in the state.

The withdrawal was to cost Rs 2,000 crore to IOC this year and would have progressively increased every year.

The state government's withdrawal of tax incentives had forced IOC to reconsider its plans to expand the 15-million-tonne Paradip refinery by 5 million tonnes.