Section 51 of the Income-tax Act, 2025 — Amortisation of Expenditure for Prospecting Certain Minerals

In plain language

What Section 51 is about

Section 51 of the Income-tax Act, 2025 (effective 1 April 2026, replacing the old Section 35E of the Income-tax Act, 1961) allows a business in the mining sector to spread out (amortise) the money it spent searching for minerals and developing a mine. Instead of writing off the whole cost in one year, the law lets you claim a deduction of one-tenth of the qualifying expenditure every year for ten years. This is because prospecting and mine-development happen years before any actual income arrives, so a one-shot deduction would be wasted (there is no profit yet to set it against). Amortisation matches the cost to the income that follows.

Who can claim it

• An Indian company, or
• A resident person (other than a company) — such as a resident individual, HUF, firm or LLP.

Foreign companies and non-residents are not eligible. The taxpayer must be engaged in operations relating to prospecting for, or extraction or production of, a specified mineral or group of associated minerals (the minerals listed in the schedule to the Act, carried forward from the Seventh Schedule of the 1961 law).

What expenditure qualifies

• Money spent wholly and exclusively on operations relating to prospecting for the mineral, or on the development of a mine or other natural deposit.
• Crucially, the law includes even infructuous or abortive operations — if your exploration proved a dead end and found nothing, that cost still qualifies. This is a taxpayer-friendly feature.
• The expenditure must have been incurred in the year of commercial production or any one or more of the four years immediately preceding it. Older spends (beyond 4 years back) fall outside the window.

What is excluded

• Cost of acquiring the site of the mine or the mineral deposit itself (or rights over it).
• Capital expenditure on any building, machinery, plant or furniture for which depreciation is separately allowable — you claim depreciation on those, not amortisation.
• Any amount already met by another person or authority, or claimed as a deduction under any other provision — no double deduction.

How the deduction is calculated

For each of the ten "relevant" tax years starting with the year of commercial production, the deduction is the lower of:

• (a) one-tenth of the qualifying (adjusted) expenditure; or
• (b) the amount that reduces to nil the income of that year from the commercial exploitation of that mine/mineral.

In other words the deduction cannot create or increase a loss against that mining income for the year — it is capped at the income of that specific mining activity.

Carry-forward of unabsorbed instalment

If in any year the full one-tenth cannot be allowed because mining income is too low, the shortfall is carried forward and added to the next year's instalment. This can continue year after year, but no instalment can be carried beyond the tenth year from the year commercial production began. Anything still unabsorbed after year ten lapses.

Audit requirement

Where the taxpayer is not a company (nor, historically, a co-operative society), the accounts of that business for the relevant year must be audited by a Chartered Accountant and the audit report furnished with the return. Under the 1961 regime this was Form 3AE under rule 6AB; the 2025 rules carry forward an equivalent report. Companies are already subject to statutory audit, so a separate report is not additionally prescribed for them.

Amalgamation and demerger

If the mining undertaking is transferred in a scheme of amalgamation or demerger to another Indian company, the successor company steps into the shoes of the predecessor and continues the remaining instalments "as if the amalgamation or demerger had not taken place." The transferring company gets no deduction in the year of transfer for the transferred instalments — continuity, not duplication.

Practical implications

• Keep a clean project-wise ledger of prospecting and development spends, tagged by year, so you can identify the four-year window when commercial production begins.
• Separate depreciable capital assets (plant, buildings) from amortisable exploration spend — mixing them up is a common audit dispute.
• Because the deduction is capped at that mine's income, early-stage miners with low output often carry forward large chunks — track the ten-year clock carefully.