Section 49 Site Restoration Fund.

Income-tax Act, 2025

At a Glance

Clause 49 of the Income Tax Bill, 2025 (old version) creates a Site Restoration Fund framework allowing deductions for deposits by petroleum/natural gas prospectors/producers into specified accounts and prescribes tax treatment on withdrawal, transfer and on-sale of assets acquired under the scheme. It affects assessee-taxpayers engaged in petroleum/natural gas operations and the tax department. Effective date or enactment timing: Not stated in the document.

Background & Scope

Statutory hooks: Clause 49 in the Income Tax Bill, 2025 (old version) falls under Profits and gains of business or profession. The clause establishes a Site Restoration Fund mechanism for entities carrying on prospecting, extracting, or producing petroleum or natural gas in India who have an agreement with the Central Government. The clause provides for (a) deduction for deposits into a special account or the site restoration account computed as per Schedule X; (b) taxation on amounts withdrawn or transferred; and (c) a deeming provision for sale/transfer of assets acquired under the scheme within eight years. Definitions or further explanations are not provided in the clause itself; references are made to "the scheme" and "the deposit scheme" and to Schedule X for computation rules.

Statutory Provision Mode

Text & Scope

Clause 49 covers three primary elements:

• Eligible taxpayers: An assessee carrying on a business of prospecting, extracting, or producing petroleum or natural gas, or both, in India, who has an agreement with the Central Government for this business.

• Deduction entitlement (Sub-section (1)): A deduction is allowed on deposits to a "special account" or the "site restoration account," computed in accordance with Schedule X.

• Taxation on withdrawals/transfers (Sub-section (2)): Any amount withdrawn or transferred "at the time of closure or otherwise" shall be charged to tax in the year of transfer/withdrawal as per Schedule X.

• Recapture on sale/transfer of assets (Sub-section (3)): If an asset acquired under "the scheme or the deposit scheme" is sold or transferred 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, that part of the cost of the asset "relatable to the deduction allowed under sub-section (1)" is to be deemed profits and gains of business in the year of sale and taxed accordingly.

Interpretation

The clause adopts a common fiscal technique: allow tax relief for contributions to a restoration fund while providing rules to recapture that relief if the asset or the fund is diverted or realised within a specified holding period. The clause expressly ties computation and timing rules to Schedule X, indicating legislative intent to set detailed procedural and computational matter in the schedule. The eight-year holding period in Sub-section (3) is an explicit anti-abuse/time-based recapture rule.

Exceptions/Provisos

Not stated in the document.

Illustrations

• Example 1 (deposit and later withdrawal): An assessee deposits sums into the site restoration account and claims a deduction under Sub-section (1). If the assessee later withdraws funds from the account at closure, the withdrawn amount will be charged to tax in the year of withdrawal in accordance with Schedule X. (This is a direct reading; numerical computation method is Not stated in the document.)

• Example 2 (asset sale within eight years): An assessee acquires equipment using funds attributable to the deduction and sells the equipment within eight years. The portion of the equipment's cost "relatable to the deduction" will be deemed business income in the year of sale and taxed under Sub-section (3). (How to compute "such part of the cost" is Not stated in the document.)

Interplay

The clause expressly references Schedule X for computation and tax treatment details. The clause also indicates a relationship between "the scheme" and "the deposit scheme," but does not reference other statutes, rules, notifications, or circulars within its text. Specific inter-statutory interactions or implications for capital allowance regimes, transfer pricing, or accounting treatment are Not stated in the document.

Differences between Section 49 of the Income-tax Act, 2025 and Clause 49 of the Income Tax Bill, 2025 (old version)

• The Act version (Section 49(2)) expressly states that amounts withdrawn or transferred are from "the aforesaid accounts" (i.e., the special account or site restoration account). The Bill version omits the explicit source reference in Sub-section (2).
  • Practical impact: The Act clarifies that only amounts withdrawn from those specified accounts are taxed on withdrawal/transfer, reducing potential ambiguity about taxing unrelated withdrawals; the Bill left room for interpretive uncertainty.
• Section 49(1) in the Act refers to deduction "on the basis of deposit to special account or site restoration account and computed as per the provisions of the Schedule X." The Bill used slightly different punctuation and included the phrase "the site restoration account."
  • Practical impact: Largely stylistic; both link computation and deduction to Schedule X. No substantive difference beyond form.
• The Bill (Clause 49(3)) contains a specific deeming rule: if an asset acquired under "the scheme or the deposit scheme" is sold or transferred by the assessee within eight years from the end of the tax year of acquisition, then "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 year of sale and taxed accordingly. The Act (Section 49(3)) removes the eight-year deeming language and instead states more generally that where any asset acquired as per the special scheme or deposit scheme (as referred to in Schedule X) is sold or otherwise transferred in any tax year, it "shall be charged to tax in accordance with the provisions of the said Schedule."
  • Practical impact: The detailed deeming mechanism and explicit eight-year period in the Bill are replaced by delegation to Schedule X. This shifts substantive detail from the clause into Schedule X, possibly allowing for different timeframes, methods of recapture, or other tax consequences. The Act reduces prescriptive statutory mechanics at clause level and creates potential uncertainty until Schedule X is consulted. It also removes the explicit eight-year anti-abuse holding period that would have triggered immediate recapture under the Bill.
• The Act explicitly uses "special scheme, or the deposit scheme, as referred to in Schedule X" whereas the Bill used "scheme or the deposit scheme."
  • Practical impact: The Act ties naming directly to Schedule X, suggesting a formal taxonomy of schemes to be defined there; otherwise, minimal substantive effect.
• The Act centralises computation and recapture rules in Schedule X; the Bill contained at least one substantive recapture/deeming rule in the clause itself.
  • Practical impact: Users must consult Schedule X under the Act for substantive details; under the Bill some essential consequences were available in the clause itself. This changes where practitioners will look for operative rules and may affect transitional, interpretive and timing questions.

Practical Implications

• Compliance and risk areas: Taxpayers must maintain clear records evidencing deposits into the special/site restoration account and any subsequent withdrawals or transfers, and must track the acquisition date of assets purchased under the scheme to determine whether the eight-year recapture window applies. Calculation of the "part of the cost relatable to the deduction" is a material compliance issue; the clause presumes such computation but does not prescribe a method (computation rules are delegated to Schedule X or left unspecified in the clause).
• Record-keeping/evidence: Records should include the agreement with the Central Government (as the clause conditions entitlement on such an agreement), ledgers of deposits to the designated accounts, dates and amounts of withdrawals/transfers, invoices and asset acquisition documents specifying which assets were acquired "as per the scheme or the deposit scheme," and documentation supporting allocation of cost between deductible-funded and non-deductible portions. Specific documentary requirements are Not stated in the document.

Key Takeaways

• Clause 49 provides an express deduction for deposits to special/site restoration accounts for petroleum/natural gas undertakings with a Central Government agreement, with computation to follow Schedule X.
• Withdrawals or transfers from the fund are taxed in the year of withdrawal/transfer under Schedule X rules.
• There is an explicit eight-year recapture/deeming rule: sale/transfer of assets acquired under the scheme within eight years will result in portion of cost attributable to prior deduction being taxed as business income in the year of sale.
• The clause leaves computational and procedural specifics to Schedule X; several operative details (calculation methodology, definitions of "scheme"/"deposit scheme", and effective date) are Not stated in the document.
• Taxpayers must preserve documentation linking deposits to specific asset acquisitions and be prepared to demonstrate allocation if assets are disposed within eight years.

Full Text:

Section 49 Site Restoration Fund.