Section 49 of the Income-tax Act, 2025 — Site Restoration Fund Deduction for Petroleum & Natural Gas Business

In plain language

What Section 49 is about

Section 49 of the Income-tax Act, 2025 gives a special business deduction to companies engaged in the petroleum and natural gas sector — those that prospect for, extract or produce petroleum or natural gas (or both) in India. It is the re-numbered successor to the old Section 33ABA of the Income-tax Act, 1961, and the working detail (limits, forms, withdrawal rules) now sits in Schedule X of the 2025 Act. The idea is simple: oil and gas fields eventually run dry and the drilling site has to be cleaned up and restored. The law lets these businesses set aside money now — while they are earning — into a locked fund, and claim a tax deduction for it, so that the future cost of "site restoration" is provided for in advance.

Who can claim it

• Business activity: The assessee must be carrying on the business of prospecting, extraction or production of petroleum or natural gas (or both) in India.
• Government agreement: There must be an agreement with the Central Government for this business. Without a valid agreement, no deduction is allowed.
• Any type of assessee in this sector — company, firm or other — can claim it, subject to the audit and deposit conditions.

How much you can deduct — the key limit

The deduction is the lower of these two amounts:

• the actual amount deposited into the approved account during the year; or
• 20% of the profits of that business, computed under the head "Profits and gains of business or profession" before making this deduction.

Important: the 20% is calculated before setting off any brought-forward losses and before claiming the Section 49 deduction itself. So the ceiling is genuinely 20% of the year's business profit.

Where the money must go

The deposit must be made into one of two approved routes, and it must be done before the end of the financial year:

• A Special Account with the State Bank of India (SBI), under a scheme approved by the Ministry of Petroleum and Natural Gas; or
• A Site Restoration Account opened under a scheme framed by the Ministry of Petroleum and Natural Gas.

Any interest credited to the account is treated as a fresh deposit and can also qualify.

Mandatory conditions

• Audit: Accounts must be audited and the audit report in Form No. 3AD must be furnished. This is a non-negotiable pre-condition.
• Withdrawals are restricted to the purposes specified in the scheme. Money cannot be pulled out casually.
• No double deduction: Any expenditure met out of money withdrawn from the account cannot be claimed again as a business expense.
• Prohibited assets: Deduction is disallowed if the withdrawn money is used to buy office appliances (computers are an exception), machinery installed in an office or residence, plant already fully written off, or plant for making items listed in the Eleventh Schedule.

When the withdrawn money becomes taxable

• Amount withdrawn but not utilised for scheme purposes in that year is treated as business income and taxed.
• On closure of the account (except where the business is wound up), the balance withdrawn is taxed as business income, after reducing amounts payable to the Government.
• 8-year asset rule: If an asset bought using the fund is sold or transferred within 8 years from the end of the year of acquisition, the deduction earlier allowed is clawed back and taxed. Exceptions apply for transfers to Government, a Government company, local authority, or on succession of a firm into a company where the account continues.

Practical implications

Section 49 is a timing benefit and a discipline tool. It lets a capital-heavy oil and gas company reduce its taxable profit today by parking cash for tomorrow's clean-up obligation. But the money is locked, the 20% cap limits how aggressive the deduction can be, and the anti-abuse rules (Form 3AD audit, prohibited assets, 8-year clawback, taxation of unused withdrawals) make sure the benefit is used only for genuine site-restoration purposes.