Heat a pan with 2 tsp oil.
Add urad dal seeds and sauté till it becomes golden in color.
Add whole dry red chilies and sauté over low flame till they become roasted as well.
Add chopped onion, sambar onion, tamarind and sauté till the onions become deep pink and they shrink well in size. Take off fire and let it cool.
Transfer this mixture to a mixie jar, add salt and grind to a smooth paste adding little water, if needed.
Once again heat the same pan with remaining 1 tsp oil.
Add mustard seeds and let it crackle.
Transfer the ground chutney to the pan.
Mix well and cook over low flame for 2-3 mins or till the chutney becomes thick and raw smell disappears.
Transfer to a serving bowl
Serve this onion chutney with idli, dosa or paniyarams.