Site Restoration Fund
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 49(1) of Income Tax Act 2025
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.
Section 49(2) of Income Tax Act 2025
49(2) Any amount withdrawn or transferred at the time of closure or otherwise shall be charged to tax in the year in which the amount is transferred or withdrawn as per the provisions of the Schedule X.
Section 49(3) of Income Tax Act 2025
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.
FAQs on Section 49 of Income Tax Act 2025
1. What is the Site Restoration Fund under the Income Tax Act, 2025?
The Site Restoration Fund is a special account created for the purpose of site restoration activities by businesses engaged in prospecting, extracting, or producing petroleum or natural gas in India, in accordance with an agreement with the Central Government.
2. Who is eligible to claim deductions under Section 49?
Only assessees carrying on the business of prospecting, extracting, or producing petroleum or natural gas, or both, in India, who have an agreement with the Central Government, are eligible to claim deductions under this section.
3. What kind of deduction is allowed under Section 49(1)?
Section 49(1) allows a deduction for amounts deposited into a special account or a site restoration account. The computation and conditions for this deduction are governed by Schedule X of the Act.
4. Is there a cap or limit on the deduction allowed under Section 49(1)?
Yes, the amount and limits for deduction are prescribed in Schedule X. It details the quantum and manner of computation of the eligible deduction.
5. What happens when an amount is withdrawn from the Site Restoration Fund?
As per Section 49(2), any amount withdrawn or transferred from the fund—whether at the time of closure of business or otherwise—is chargeable to tax in the year in which such withdrawal or transfer takes place, as per Schedule X.
6. Is tax applicable even if the amount withdrawn is used for restoration purposes?
The taxability of withdrawn amounts, even if used for restoration, is governed by the specific provisions in Schedule X. Generally, if not used as per the scheme, such amounts may be taxed.
7. What is the tax implication if an asset acquired under the scheme is sold before 8 years?
If an asset acquired under the deposit scheme is sold or transferred within 8 years from the end of the year in which it was acquired, the portion of its cost corresponding to the earlier deduction will be deemed as profits and gains of business or profession and taxed in the year of sale or transfer (Section 49(3)).
8. Is the 8-year restriction in Section 49(3) applicable even if the asset is transferred for restoration work?
Yes, the provision applies regardless of the purpose of transfer. If the transfer occurs within 8 years, tax consequences as per Section 49(3) will follow.
9. Can the assessee claim both normal business expenses and deposit-based deduction under Section 49?
No, double deduction is not permitted. Any expenditure allowed under other provisions cannot be claimed again via the deposit to the Site Restoration Fund.
10. Can the Site Restoration Fund be held jointly with another entity?
The account must be held as per the scheme notified under Schedule X. It generally requires the account to be in the name of the assessee and operated in accordance with the agreement with the Central Government.
11. What is Schedule X referred to in Section 49?
Schedule X outlines the conditions, computation methods, allowable limits, and tax implications related to the Site Restoration Fund. It is integral to interpreting Section 49.
12. Are there any penalties for misuse of the Site Restoration Fund?
While Section 49 itself does not prescribe penalties, misuse or deviation from the scheme conditions may result in withdrawal of deduction and taxation of amounts, along with possible penal consequences under other sections.
13. Is the deduction allowed under Section 49 available every year?
The availability of deduction is subject to annual deposits made into the Fund and must comply with the conditions of Schedule X. It is not automatic and must be claimed accordingly.
14. Can a deduction be claimed if the deposit is made after the end of the financial year?
The timing of deposit must conform to the conditions laid out in Schedule X. Usually, only deposits made within the relevant tax year are eligible.
15. Does the fund have to be maintained with a specific bank or institution?
Yes, the Central Government may prescribe eligible banks or institutions where such accounts can be maintained under the scheme notified in Schedule X.
16. Is separate accounting required for the Site Restoration Fund?
Yes, it is advisable to maintain clear records and separate accounts for the Site Restoration Fund to ensure compliance with the deduction and audit requirements.
17. Are audit or certification requirements applicable for deposits or withdrawals?
Yes, certification or audit may be required as per Schedule X or other relevant provisions to validate the deposit and utilization of funds.
18. How are partial withdrawals treated under Section 49(2)?
Any partial withdrawals are also taxable in the year of withdrawal, unless exempted under conditions laid out in Schedule X.
19. Can the deduction be reversed in case of non-compliance?
Yes, if the conditions under Section 49 or Schedule X are not met, the deduction claimed earlier may be reversed and taxed accordingly.
20. When does Section 49 become effective?
Section 49 of the Income Tax Act, 2025, is applicable with effect from 1st April, 2026.
Section 49 of the Income Tax Act, 2025, provides a specialized deduction mechanism to support businesses engaged in petroleum and natural gas exploration in meeting their site restoration obligations. By allowing deductions for contributions to a Site Restoration Fund, the law incentivizes responsible environmental stewardship while ensuring deferred taxation on withdrawals or premature asset transfers.
However, to avail the benefits, strict compliance with the conditions outlined in Schedule X is essential. Proper planning, record-keeping, and adherence to timelines are crucial for maximizing the tax advantages and avoiding potential tax liabilities under this section.
