Section 49 Income Tax Act 2025: Who Can Claim Site Restoration Fund Deduction?

Section 49 of the Income-tax Act, 2025 provides a deduction for qualifying deposits made towards restoration of petroleum and natural gas exploration or production sites. Schedule X sets out the calculation, eligibility conditions and consequences of withdrawing or using the funds.

Current law: Section 49 and Schedule X apply under the Income-tax Act, 2025, effective from 1 April 2026. For earlier periods, consult section 33ABA of the Income-tax Act, 1961 and the applicable transition provisions.

What does Section 49 provide?

Section 49 deals with the Site Restoration Fund. It permits a qualifying assessee engaged in prospecting for, extracting or producing petroleum or natural gas in India, under an agreement with the Central Government, to deduct qualifying deposits in an approved account. The detailed rules are in Schedule X.

Section 49(2) addresses tax consequences when money is withdrawn or transferred from the relevant account. Section 49(3) addresses assets purchased under the prescribed schemes and subsequently sold or transferred. These consequences must be determined in accordance with Schedule X rather than by treating every withdrawal as automatically exempt.

Who can claim the deduction?

The claimant must be carrying on the business of prospecting for, extracting or producing petroleum or natural gas, or both, in India, and must have entered into an agreement with the Central Government for that business. A business merely supplying unrelated services to the petroleum industry does not qualify solely by reason of being in that industry.

How is the deduction calculated under Schedule X?

Paragraph 1 of Schedule X limits the deduction to the lower of the following:

The amount or aggregate amount deposited in the prescribed special account or site restoration account; or
20% of the profits of the qualifying business, computed under the head "Profits and gains of business or profession" before this deduction.

The deduction is considered before setting off eligible brought-forward business losses under section 112. Interest credited to the specified account is treated as a deposit for the purpose of Schedule X. The same deposit cannot support a deduction in more than one tax year.

What conditions must be satisfied?

Deposit timing: Deposit the amount before the end of the relevant tax year.
Prescribed account: Use a special account maintained with the State Bank of India under the approved special scheme, or a site restoration account under the prescribed deposit scheme.
Audit: Obtain the audit of the qualifying business accounts and furnish the required audit report within the applicable specified date under section 63 and Schedule X.
No duplicate claim: Do not claim the same deposit again in another tax year.
Entity-level claim: Where the assessee is a firm, association of persons or body of individuals, the deduction is not separately available to its partners or members.

Where an audit is already required under another law, Schedule X provides a route for compliance using that audit together with the prescribed accountant's report, subject to its conditions.

How are withdrawals and transfers taxed?

Withdrawals are restricted to purposes permitted by the relevant special or deposit scheme. Schedule X specifies when withdrawn, transferred or otherwise applied amounts become taxable and provides rules for assets acquired using the account. A withdrawal for an approved restoration purpose should therefore be evaluated separately from a withdrawal for an unauthorised purpose.

When an asset acquired under the scheme is sold or otherwise transferred, section 49(3) requires the tax consequences to be determined under Schedule X, including any applicable recapture rules and exceptions. Maintain supporting records of the source of funds, date of acquisition, use and disposal of the asset.

Important statutory terms

Assessee: The person liable to tax or otherwise covered by the statutory definition of assessee under the Act.

Special account: The account maintained with the State Bank of India in accordance with the government-approved special scheme described in Schedule X.

Site restoration account: The account maintained under the deposit scheme for site restoration as contemplated by Schedule X.

Qualifying business profits: Profits of the eligible petroleum or natural gas business computed under the business-income head before the Schedule X deduction.

Tax year: The relevant period for computation under the Income-tax Act, 2025; the Act uses this term in place of the earlier assessment-year and previous-year framework for current-year computation.

Example: calculation of Site Restoration Fund deduction

Suppose a qualifying petroleum producer has business profits of Rs. 5 crore before the Schedule X deduction and deposits Rs. 1.40 crore in the prescribed account within the tax year.

Qualifying business profits	Rs. 5,00,00,000
20% of business profits	Rs. 1,00,00,000
Eligible deposit	Rs. 1,40,00,000
Maximum deduction	Rs. 1,00,00,000

The deduction is Rs. 1 crore, being the lower of the actual deposit and 20% of qualifying profits, assuming all other statutory conditions are met. This example is illustrative and does not account for other adjustments to business profits.

Relationship with the Income-tax Act, 1961

Section 49 broadly succeeds section 33ABA of the Income-tax Act, 1961. The numbering is important: section 49 of the 1961 Act concerns cost of acquisition in certain cases and is not the Site Restoration Fund provision. The applicable statute depends on the tax year and transitional rules.

Frequently asked questions

Is every petroleum company entitled to the deduction?

No. The business must satisfy the Central Government agreement requirement and the conditions in Schedule X, including eligible deposits and audit compliance.

Is the deduction always 20% of profits?

No. It is limited to the lower of the qualifying deposits and 20% of the eligible business profits.

Can the same deposit be deducted twice?

No. Schedule X prevents deduction of the same deposited amount in more than one tax year.

Can funds be withdrawn for any business expense?

No. Withdrawals must conform to the approved scheme; tax consequences depend on the specific use and Schedule X.

Which provision applied under the 1961 Act?

The corresponding provision was section 33ABA of the Income-tax Act, 1961.

Practical compliance: Preserve the Central Government agreement, bank deposit confirmations, account statements, scheme approvals, audit reports, withdrawal authorisations and asset records. Review Schedule X before claiming the deduction or disposing of an asset financed by the account.

Official statutory source

Income-tax Act 2025 - official consolidated text Income Tax Department - Act 2025 resources

Last reviewed: 10 November 2026. General statutory information; consult the Act, Schedule X, applicable schemes and notifications for a particular claim.