SCHEDULE X - DEDUCTION FOR SITE RESTORATION FUND FOR COMPUTING INCOME UNDER THE HEAD "PROFITS AND GAINS OF BUSINESS OR PROFESSION".

Income-tax Act, 2025

At a Glance

Schedule X in theIncome Tax Bill, 2025 sets out a tax regime for deductions in relation to a site restoration fund for taxpayers engaged in petroleum or natural gas prospecting, extraction or production in India. It prescribes quantum, conditions, restrictions on withdrawal and use of funds, tax consequences on closure/withdrawal or sale of assets, and definitions. The provision affects taxpayers in upstream hydrocarbon activities, and the Central Government (through scheme approvals) and State Bank of India (as deposit vehicle).

Background & Scope

Statutory hook: "(See section 49)" - the Schedule is linked to section 49. The Schedule is limited to computing income under the head "Profits and gains of business or profession" and creates a specific deduction mechanism for amounts deposited in designated site restoration accounts/special accounts. Coverage: persons carrying on business of prospecting for, extraction or production of petroleum or natural gas in India who have an agreement with the Central Government. Definitions provided in paragraph 6 include "amount standing to the credit of the assessee," "deposit scheme," "specified account," "special account," "special scheme," "site restoration account," and "State Bank of India." The Schedule therefore contemplates scheme instruments (special scheme, deposit scheme) to be approved or made by the Ministry of Petroleum and Natural Gas and deposited in SBI accounts.

Statutory Provision Mode

Text & Scope

• Paragraph 1 sets the quantum of deduction: an assessee may claim either the amount deposited in the specified account maintained with SBI (paragraph 2) or 20% of the profits of the business under the head "Profits and gains of business or profession" before claiming the paragraph 1 deduction itself, whichever is less. The deduction is allowed before set off of brought-forward losses (reference to section 112). Interest credited to the specified account is treated as deposit (para 1(3)).
• Paragraph 2 prescribes conditions: the taxpayer must (a) carry on the relevant petroleum/natural gas business in India and have an agreement with the Central Government; (b) before year-end deposit amounts in a specified account which is either a special account (per special scheme) or a site restoration account (per deposit scheme); and (c) get the accounts of the relevant business audited by an accountant before the date specified in section 63 and furnish the audit report "in such form and manner, as prescribed and verified by such accountant." Where audit under other law is required, compliance under that law suffices if the reports are furnished by the specified date (para 2(2)). Paragraph 2(3) bars duplicative claims for the same amount across tax years; paragraph 2(4) denies the deduction for partners/members of firms/AOPs when the entity claimed the deduction.
• Paragraph 3 restricts withdrawals from specified accounts to purposes specified in the special scheme/deposit scheme, and creates tax consequences where funds are released/withdrawn and utilised for purchases of "specified articles or things": whole of such utilised amount shall be deemed to be profits and gains of business of that tax year and taxed accordingly. Paragraph 3 details the treatment on closure of the account: amount withdrawn on closure (less production/profit share payable to Central Government) is deemed business income (formula A = B - C). Paragraph 3(4) treats closure where the business no longer exists as if the business existed. Paragraph 3(5) deems amounts released by SBI or withdrawn but not utilised in the year to be express taxable profits for that year. Paragraph 3(6) prevents double relief: if amounts are utilised in accordance with the scheme, that expenditure is not otherwise allowable as a deduction under the head.
• Paragraph 4 reinforces the non-allowance of deduction for expenditure incurred using amounts standing to the credit of the specified account; the phrase explicitly includes interest.
• Paragraph 5 treats sale/transfer of assets acquired under the schemes: if such an asset is sold/transferred within eight years of acquisition, the portion of the asset's cost attributable to the earlier deduction is deemed profits and taxed. Exceptions include transfers to specified persons (Government, local authority, statutory corporation, Government company) and firm-to-company succession where specified conditions are met (para 5(2)).

Interpretation

The legislative intent indicated by the text is to incentivise ring-fencing of funds for site restoration by allowing a deduction for specific deposits, subject to strict conditions, audit, and restrictions on withdrawal and use. The Schedule balances incentive with anti-abuse measures: disallowance or deeming provisions punish diversion of funds to asset purchases or non-designated purposes, and clawback via deemed income on account closure or sale of assets benefiting from the deduction.

Exceptions/Provisos

Key carve-outs: (i) paragraph 2(2) permits audit compliance under other statutory law in place of the separate form if the requisite reports are furnished by the specified date; (ii) paragraph 5(2) provides exceptions to clawback on asset sale where transfers are to specified public bodies or upon firm->company succession meeting strict continuity and shareholder partnership tests. Thresholds and timelines: an eight-year anti-abuse window for assets acquired under the scheme (para 5(1)).

Illustrations

• Example 1: A taxpayer deposits INR X in the site restoration account in Year 1 and claims deduction under para 1 up to 20% of profits. If in Year 3 the account is closed and INR B is withdrawn and INR C is to be paid to the Central Government, the net A = B - C is included in Year 3 income as deemed profits (para 3(3)).
• Example 2: If the taxpayer withdraws funds and uses them in Year 2 to buy office appliances (excluding computers), the whole of the amount so utilised is deemed to be taxable profits in that year (para 3(2)(a)).
• Example 3: A firm that purchased an asset under the special scheme and claimed deduction, transfers all assets and liabilities to a company in a bona fide succession where all shareholders were earlier partners; relief from para 5(1) clawback may apply if conditions in para 5(2)(b)(i)-(iv) are satisfied.

Interplay

The Schedule presumes enabling instruments: "special scheme" (approved by the Ministry of Petroleum and Natural Gas) and "deposit scheme" (made by that Ministry) determine permitted uses of funds and the mechanics of SBI accounts. It references section 49 and section 63; it also interacts with section 112 as regards carry-forward set-off. The Schedule itself disallows concomitant deductions for expenditures funded by the specified account, indicating internal interplay to prevent double relief. No rules, notifications or circular numbers are cited in the text; details are left to scheme notifications and prescribed audit forms.

Differences between Schedule X - of the Income-tax Act, 2025 and Schedule X of the Income Tax Bill, 2025 - (Old Version)

• Reference to State Bank of India (SBI) in account description: The Bill (Document 2) expressly states in paragraph 1(a) that the account is "maintained with the State Bank of India as specified in paragraph 2." The Act (Document 1) uses slightly different phrasing in paragraph 1(a) - "the amount or aggregate of the amount deposited by the assessee in the account as specified in paragraph 2" - and paragraph 2(b)(i) in the Act expressly reads "a special account maintanined [sic] with the State Bank of India."
  • Practical impact: the Bill's text is more explicit in para 1(a) about SBI; the Act retains the SBI requirement but places it in paragraph 2(b)(i). Substantive effect appears negligible - both versions confine the qualifying special account to SBI - but drafting location of the requirement changes emphasis and may affect ease of literal reading and compliance guidance.
• Audit-report wording and formality: The Bill in paragraph 2(1)(c) requires audit and the furnishing of an audit report "in such form and manner, as prescribed and verified by such accountant" whereas the Act's corresponding text in paragraph 2(1)(c) uses "as may be prescribed and verified by such accountant."
  • Practical impact: difference is stylistic; both confer rule-making power to prescribe form and manner. No material change in taxpayer obligation is evident from the texts provided.
• Treatment where funds are used to purchase "specified articles or things": This is the clearest substantive divergence. The Bill (Document 2), at paragraph 3(2)(a), provides that if amounts standing to the credit are released/withdrawn and utilised for purchase of specified articles/things, "then, whole of such amount so utilised shall be deemed to be the profits and gains of business of that tax year and shall accordingly be charged to income-tax for that tax year." The Act (Document 1), paragraph 3(2)(a), states instead that "if the amount is utilised for the purchase of specified articles or things, then, such amount shall not be allowed as deduction under paragraph 1."
  • Practical impact: The Bill treats utilisation as a deemed taxable income (triggering immediate inclusion in profits), whereas the Act appears to limit the relief by denying the deduction but does not explicitly convert the utilised amount into deemed income under paragraph 3(2)(a). Practically, the Bill's position is harsher because it creates an affirmative tax charge on utilisation; the Act's wording (if read literally) may merely deny the earlier deduction (i.e., disallow relief) without separately creating a deemed income entry - though other provisions (e.g., paragraph 3(5) / 3(3)) still provide for deemed income in certain circumstances. This difference could materially affect tax liability timing and computation; however, the Act elsewhere contains provisions that deem withdrawals or unreconciled amounts to be profits (see para 3(3), 3(5)). The net effect requires integrated reading but the Bill's explicit deeming in 3(2)(a) is clearer and more immediate.
• Scope/wording for "specified article or thing" (clause iv): The Bill's clause 3(2)(b)(iv) reads "any new machinery or plant for constructing or manufacturing or producing any items listed in the Schedule XIII." The Act's clause 3(2)(b)(iv) reads "any new machinery or plant to be installed in an industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing specified in the list in Schedule XIII."
  • Practical impact: The Act's text adds the condition "to be installed in an industrial undertaking" and uses broader phrasing ("article or thing specified in the list in Schedule XIII"), which may narrow or clarify the class of assets captured (installation in industrial undertaking). The Bill's shorter phrase potentially captures a wider category (not expressly limited to installation in an industrial undertaking). The drafting difference could affect whether certain machinery qualifies as a "specified article" and thus whether utilisation triggers the adverse tax consequences referred to in para 3(2).
• References to persons/terminology for compliance where audited under other law: The Bill uses "such person" in paragraph 2(2) while the Act uses "such assessee."
  • Practical impact: purely terminological; no substantive change in obligation apparent.
• Minor drafting/formatting and consistency differences: Several wording changes (e.g., "whole of such amount so utilised shall be deemed..." in the Bill versus "such amount shall not be allowed as deduction..." in the Act; small syntactic differences in para numbering and punctuation) appear throughout.
  • Practical impact: largely drafting; however, where the Bill explicitly creates deeming of income on utilisation (Bill 3(2)(a)) versus mere disallowance (Act 3(2)(a)), there is a non-trivial tax consequence difference as described above.

Overall practical consequence: Most differences are drafting refinements. The principal material difference is the Bill's explicit deeming of amounts utilised for certain purchases as taxable income (immediate tax charge), whereas the Act's parallel provision focuses on disallowing deduction for such utilisation. That difference may change taxpayers' computation of taxable profits and the timing/amount of tax payable when site restoration funds are diverted to specified asset purchases. Other differences are clarificatory or stylistic and unlikely to change compliance burden materially.

Practical Implications

• Compliance and risk areas: taxpayers must ensure deposits are made into the exact specified SBI account type and in accordance with the applicable special/deposit scheme; strict year-end deposit timing is material. Use of funds for non-permitted purposes (including certain asset purchases) triggers immediate tax consequences via deeming, so robust internal controls and accounting to track fund utilisation are necessary.
• Record-keeping/evidence: taxpayers should retain proof of deposits into specified SBI accounts, scheme documentation (special/deposit scheme), the agreement with Central Government, audited accounts and prescribed audit reports filed by the section 63 date, and evidence of utilisation of funds (invoices, installation proof, purpose). Records supporting any continuity conditions on firm->company succession will be essential to claim the para 5(2)(b) exception.

Key Takeaways

• SCHEDULE-X allows a deduction up to the lesser of actual deposits in designated SBI accounts or 20% of pre-deduction business profits for upstream petroleum/natural gas taxpayers.
• Deposits must be in specified accounts tied to special/deposit schemes approved by the Ministry of Petroleum and Natural Gas; audit and prescribed reporting are mandatory.
• Withdrawal and utilisation of funds for certain "specified articles or things" results in the whole utilised amount being treated as deemed business income in the year of utilisation.
• Closure of the specified account triggers a deeming charge: amount withdrawn less any production/profit share payable to the Central Government is included as business income.
• Assets acquired under the schemes sold within eight years attract a clawback: the portion of cost attributable to the earlier deduction is treated as taxable profits, subject to limited exceptions.
• Expenditure funded from specified accounts is not separately deductible; interest credited to the accounts is treated as deposit and included in the account balance.
• Several implementation details (forms, scheme particulars, timelines) are left to the schemes and prescription; taxpayers must monitor corresponding ministry schemes and prescribed formats.

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Full Text:

SCHEDULE X - DEDUCTION FOR SITE RESTORATION FUND FOR COMPUTING INCOME UNDER THE HEAD "PROFITS AND GAINS OF BUSINESS OR PROFESSION".

Deduction for site restoration funds: designated SBI deposits allow capped tax relief but trigger deeming on improper use. A deduction permits upstream petroleum and natural gas taxpayers to deduct amounts deposited in designated site restoration accounts held with the State Bank of India, limited to the lesser of actual deposits or 20% of business profits before the deduction; deposits and interest are treated as account balance, withdrawals are restricted to scheme permitted uses, and improper utilisation or account closure triggers deeming provisions or disallowance, with an eight year clawback on asset sales subject to narrow exceptions.