The new unit - Finance Company - will help IOC benefit from interest arbitrage as the company's borrowings increase after selling fuel locally at below-market rates.
Finance Company will be based in the International Financial Services Centre (IFSC) at Gujarat International Finance Tec-City (GIFT City) in western India.
GIFT City is the culmination of Prime Minister Narendra Modi's dream to create an international financial centre in the western state, where he was chief minister from 2001 to 2014.
Companies based in GIFT City get a 100% income tax exemption for 10 years.
Finance Company will "carry out finance activities such as fund pooling of foreign companies and utilise the same for carrying out trade financing of IOC and group companies".
IOC controls about a third of India's 5 million barrel per day (bpd) refining capacity and regularly requires trade financing for its crude imports.
Finance Company will also handle IOC's global treasury operation and utilise IFSC to raise capital and debt from overseas markets, it said.
(Reporting by Nidhi Verma; Editing by Kirsten Donovan)