India's finance bill, part of the annual budget, said the exemption is in the "national interest" and would be implemented from April 1, Reuters reported.
Iran has opened a new rupee payment mechanism for Indian exporters, in order to skirt western sanctions. Under this, Iran allows India to make 45 per cent of its oil payments in rupees.
India, had announced earlier this month that it will provide incentives for exports to Iran on which the payment would be made in rupees under the new arrangement worked out by the two countries.
Currently Indian refiners are paying for their oil imports through Turkey's Halkbank, but refiners fear this system may fall foul of the new US-led sanctions against the Islamic Republic.
Sources at Indian refiners said they would be making 45 percent of payments in rupees and the remainder through Halkbank as long as that mechanism functions.
"If the Budget is passed by the parliament, we may pay 100 percent through (the rupee mechanism) if the Turkey route stops," said one of the officials.
Also, media reports said in February that Iran's crude exports to India have increased to 550,000 barrels a day in January which shows a 37.5% growth compared with the same period last year.
India, the world's fourth-largest petroleum consumer, is Iran's second largest oil customer after China and purchases around $12 billion worth of Iranian crude every year, about 12 percent of its consumption.