Site Restoration Fund Deduction under the Income Tax Act 2025: Section 49 and Schedule X
Under section 49 of the Income-tax Act, 2025, a business that prospects for, extracts or produces petroleum or natural gas in India under an agreement with the Central Government can deduct what it deposits in a special account with the State Bank of India or in a site restoration account. The deduction is the lower of the amount deposited and 20% of the business profit before this deduction. The detailed rules are in Schedule X, and the audit report is filed in Form No. 183 (rule 291 of the Income-tax Rules, 2026).
The deduction is a timing benefit. Money withdrawn or left unused is taxed later. This guide covers who qualifies, how the deduction is computed, what is taxed on withdrawal, and what happens if an asset bought under the scheme is sold early. Everything is taken from the Act as amended by the Finance Act, 2026, and the Rules, with paragraph numbers beside each point. Last reviewed on 10 November 2026.
What is the site restoration fund deduction?
Oil and gas fields have to be cleaned up and restored when production ends. The Act lets the operator set money aside during the productive years and treats the deposit as a deduction in computing "Profits and gains of business or profession". Section 49(1) allows the deduction for deposits into a "special account" or a "site restoration account", computed under Schedule X.
The two accounts are defined in Schedule X, paragraph 6:
- Special account: an account with the State Bank of India, used in line with the special scheme approved by the Government of India in the Ministry of Petroleum and Natural Gas.
- Site restoration account: an account the assessee opens, used in line with the deposit scheme made by the Ministry of Petroleum and Natural Gas.
Together they are called the "specified account".
Who can claim it?
Schedule X, paragraph 2(1) sets three conditions. All must be met for the tax year:
| Condition | What it requires | Reference |
|---|---|---|
| Business | Carrying on the business of prospecting for, or extraction or production of, petroleum or natural gas (or both) in India, under an agreement with the Central Government | Sch. X, para 2(1)(a) |
| Deposit | Amount deposited in the special account or the site restoration account before the end of the tax year | Sch. X, para 2(1)(b) |
| Audit | Accounts of the business for that tax year audited by an accountant before the specified date in section 63, and the audit report furnished by that date in the prescribed form (Form No. 183) | Sch. X, para 2(1)(c); rule 291 |
If another law already requires your accounts to be audited, it is enough to get them audited under that law before the section 63 date and furnish that audit report along with the accountant's report in the prescribed form (para 2(2)).
How much deduction can you claim?
Schedule X, paragraph 1(1) gives the deduction as the lower of:
- the amount (or total of amounts) deposited in the specified account; or
- 20% of the profits of the business, computed under the head "Profits and gains of business or profession" before making any deduction under this paragraph.
Two further points. Interest credited to the specified account is deemed to be a deposit (para 1(3)). The deduction is allowed before set-off of brought-forward losses under section 112 (para 1(2)).
Worked examples of the deduction
Both examples use tax year 2026-27 and assume all three conditions are met. Figures are illustrative.
| Step | Case 1: deposit is the lower figure | Case 2: 20% cap is the lower figure |
|---|---|---|
| Business profit before this deduction | Rs 2,00,00,000 | Rs 1,50,00,000 |
| Deposit in specified account (incl. interest credited) | Rs 30,00,000 | Rs 50,00,000 |
| 20% of profit | Rs 40,00,000 | Rs 30,00,000 |
| Deduction (lower of the two) | Rs 30,00,000 | Rs 30,00,000 |
| Profit after deduction | Rs 1,70,00,000 | Rs 1,20,00,000 |
In Case 2, the extra Rs 20,00,000 deposited earns no deduction under paragraph 1 this year, because of the 20% cap. Paragraph 2(3) also says an amount allowed as a deduction in one year cannot be allowed again in any other year.
What happens when money is withdrawn from the account?
Section 49(2) taxes amounts withdrawn or transferred from these accounts, as provided in Schedule X. Paragraph 3 has three rules.
- Closure of the account (para 3(3)). The amount withdrawn on closure, minus any amount payable to the Central Government as profit or production share under the agreement referred to in section 54, is deemed business profit of that year. Formula: A = B - C.
- Withdrawn but not used (para 3(5)). If money is released by SBI or withdrawn from the site restoration account for the business and is not used, wholly or partly, in that tax year, the unused part is deemed business profit of that year.
- Business has ended (para 3(4)). If the account is closed in a year when the business no longer exists, paragraph 3(3) applies as if the business still existed.
Withdrawals are allowed only for the purposes in the special scheme or deposit scheme (para 3(1)). Using the money for specified articles, such as machinery or plant for office premises or a guest-house, or office appliances other than computers, means that amount gets no deduction (para 3(2)).
Worked example (tax year 2026-27). An operator closes its special account and receives Rs 80,00,000. The agreement requires Rs 25,00,000 to be paid to the Central Government as production share.
| Item | Amount |
|---|---|
| B: amount withdrawn on closure | Rs 80,00,000 |
| C: payable to Central Government under the agreement | Rs 25,00,000 |
| A = B - C: deemed business profit | Rs 55,00,000 |
Is the expenditure paid from the account also deductible?
No. If you spend money from the specified account on business expenditure under the scheme, that expenditure is not allowed as a deduction (para 3(6) and para 4(1)). The amount in the account includes interest (para 4(2)). The reason is simple: you already took the deduction when you deposited.
What if you sell an asset bought under the scheme?
Section 49(3) and Schedule X, paragraph 5 apply where an asset acquired under the special scheme or deposit scheme is sold or transferred before eight years have passed from the end of the tax year in which it was acquired. The part of the asset's cost that relates to the deduction allowed is deemed business profit of the year of sale.
The rule does not apply to a sale to a "specified person" (para 5(2)(a)): the Government, a local authority, a statutory corporation, or a Government company. It also does not apply when a firm transfers to a company that succeeds it, if the four conditions in para 5(2)(b) are met (same scheme applies to the company, all properties and liabilities pass over, and all shareholders were partners of the firm).
Real-life examples
Ravi's company operates a gas block under a production-sharing agreement. It deposits money in the site restoration account in March and pays the audit firm to finish the audit and Form 183 after the section 63 date. Because paragraph 2(1)(c) needs the audit report by that date, the deduction is at risk even though the deposit was made on time.
Meena's partnership firm holds an exploration agreement. The firm claims the deduction. Paragraph 2(4) says the partners cannot claim it again in their own income. The benefit sits only in the firm's computation.
Common mistakes
- Depositing after 31 March of the tax year. The deposit must be made before the tax year ends (para 2(1)(b)).
- Computing 20% on profit after other adjustments. The base is profit before any deduction under paragraph 1.
- Forgetting that interest credited to the account counts as a deposit and also as part of the balance taxed on withdrawal.
- Claiming the expenditure again when it is paid from the specified account.
- Selling an asset within eight years without checking whether the buyer is a specified person.
- Withdrawing money and not using it in the same tax year, which makes the unused part taxable.
Quick reference
| Point | Rule | Reference |
|---|---|---|
| Deduction cap | Lower of deposit or 20% of profit before deduction | Sch. X, para 1(1) |
| Deposit timing | Before the end of the tax year | Sch. X, para 2(1)(b) |
| Audit report | Form No. 183, by the section 63 date | Sch. X, para 2(1)(c); rule 291 |
| Asset sale lock-in | Eight years from the end of the tax year of acquisition | Sch. X, para 5(1) |
| Tax on closure | Withdrawal less amount payable to Central Government | Sch. X, para 3(3) |
Where this is in the Act
- Section 49: Site Restoration Fund (sub-sections 1 to 3)
- Schedule X: quantum (para 1), conditions (para 2), withdrawals (para 3), no double deduction (para 4), asset sale (para 5), definitions (para 6)
- Section 63: specified date for the audit report; section 112: set-off of brought-forward losses; section 54: agreement with the Central Government
- Rule 291 of the Income-tax Rules, 2026: audit report in Form No. 183
- Rule 100: if the assessee opts for safe harbour under rule 101 for an eligible business, deductions under Schedule X are treated as already given effect to
How do CA firms keep track of this?
The deduction depends on dates: the deposit before year end, the audit report by the section 63 date, and the eight-year window on assets. Finexo's practice management software lets a CA firm track these deadlines across clients and set reminders. It does not compute the deduction or file Form 183.
This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.
Frequently Asked Questions
What is the site restoration fund deduction under the Income-tax Act, 2025?
Section 49 allows a petroleum or natural gas business in India, with an agreement with the Central Government, a deduction for deposits in a special account with SBI or a site restoration account. The amount is computed under Schedule X.
How much can be deducted under Schedule X?
The lower of the amount deposited and 20% of the business profit computed before making this deduction (Schedule X, para 1(1)). Interest credited to the account counts as a deposit.
Which form is used for the audit report?
Form No. 183 under rule 291 of the Income-tax Rules, 2026. It must be furnished by the specified date referred to in section 63.
What happens when the account is closed?
The amount withdrawn on closure, less any amount payable to the Central Government as profit or production share, is deemed business profit of that year (Schedule X, para 3(3)).
Can partners claim the deduction separately if a firm claims it?
No. Where the assessee is a firm, AOP or BOI, the deduction is not allowed in computing the income of any partner or member (Schedule X, para 2(4)).