Income Tax 2025

Appearance

Site Restoration Fund. ​

49(1) ​

An assessee carrying on a business of prospecting, extracting, or producing petroleum or natural gas, or both, in India, and who has an agreement with the Central Government for this business, shall be allowed a deduction on the basis of deposit to special account or the site restoration account, computed as per the provisions of the Schedule X.

49(2) ​

Any amount withdrawn or transferred at the time of closure or otherwise shall be charged to tax in the year in which the amount is transferred or withdrawn as per the provisions of the Schedule X

49(3) ​

Where any asset acquired as per the scheme or the deposit scheme is sold or otherwise transferred in any tax year by the assessee to any person at any time before the expiry of eight years from the end of the tax year in which it was acquired, such part of the cost of such asset as is relatable to the deduction allowed under sub-section (1) shall be deemed to be the profits and gains of business or profession of the tax year in which the asset is sold or otherwise transferred and shall accordingly be chargeable to income-tax as the income of that tax year

Explanation

Section Summary: ​

Section 49 of the new income tax law introduces provisions related to the Site Restoration Fund for businesses involved in prospecting, extracting, or producing petroleum or natural gas in India. It allows such businesses to claim deductions for deposits made into a special account (Site Restoration Account) and outlines the tax treatment of withdrawals, transfers, or sales of assets linked to this fund.

Key Changes: ​

  1. Introduction of Site Restoration Fund: This is a new provision specifically targeting businesses in the petroleum and natural gas sector. It allows deductions for deposits made into a Site Restoration Account, which is aimed at funding future site restoration activities.
  2. Taxation of Withdrawals: Any amount withdrawn or transferred from this fund is taxable in the year of withdrawal or transfer.
  3. Clawback Provision: If assets acquired through the fund are sold or transferred within eight years, the deduction previously claimed will be partially reversed and taxed as business income.

Practical Implications: ​

  1. For Petroleum and Natural Gas Businesses: Companies in this sector can now claim deductions for contributions made to the Site Restoration Account, reducing their taxable income. However, they must ensure compliance with the conditions specified in Schedule X.
  2. Tax Liability on Withdrawals: Businesses need to be cautious about withdrawals or transfers from the fund, as these amounts will be taxable in the year they are accessed.
  3. Asset Sales: If assets linked to the fund are sold or transferred within eight years, the tax benefit previously claimed will be partially clawed back, increasing taxable income in the year of sale.

Critical Concepts: ​

  1. Site Restoration Account: A special account created to fund the restoration of sites used for petroleum or natural gas extraction. Contributions to this account are eligible for tax deductions.
  2. Clawback Mechanism: If assets acquired through the fund are sold or transferred within eight years, the tax benefit associated with the deduction is reversed. The amount reversed is calculated based on the proportion of the deduction claimed relative to the asset's cost.
  3. Schedule X: This schedule provides the detailed rules for computing deductions, withdrawals, and clawback amounts. It is essential to refer to Schedule X for precise calculations.

Compliance Steps: ​

  1. Maintain a Site Restoration Account: Businesses must open and maintain a Site Restoration Account as per the guidelines.
  2. Document Contributions: Keep detailed records of deposits made into the account to claim deductions under Section 49(1).
  3. Monitor Withdrawals: Ensure proper documentation and reporting of any withdrawals or transfers from the account, as these will be taxable.
  4. Track Asset Sales: If assets linked to the fund are sold or transferred within eight years, calculate the clawback amount and include it in taxable income for the relevant year.

Examples: ​

  1. Deduction Claim: A petroleum company deposits ₹10 crore into its Site Restoration Account in FY 2023-24. It can claim a deduction of ₹10 crore from its taxable income for that year, reducing its tax liability.
  2. Withdrawal Taxation: In FY 2025-26, the company withdraws ₹2 crore from the fund. This ₹2 crore will be added to its taxable income for FY 2025-26.
  3. Asset Sale Clawback: The company acquires machinery worth ₹5 crore using funds from the Site Restoration Account in FY 2023-24. If it sells this machinery in FY 2026-27 (within eight years), the portion of the deduction claimed (e.g., ₹5 crore) will be added back to its taxable income for FY 2026-27.

This section ensures that businesses in the petroleum and natural gas sector plan for site restoration while balancing tax benefits with potential future liabilities.