Chapter IV - Computation of Total Income
Section 49
Section 49: Site Restoration Fund deduction
Section 49 gives businesses engaged in prospecting, extracting or producing petroleum or natural gas in India - under an agreement with the Central Government - a deduction based on deposits made to a special account or site restoration account, with the detailed computation and taxation rules set out in Schedule X.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) An assessee carrying on a business of prospecting, extracting, or producing petroleum or natural gas, or both, in India, and who has an agreement with the Central Government for this business, shall be allowed a deduction on the basis of deposit to special account or site restoration account and computed as per the provisions of the Schedule X.
(2) Any amount withdrawn or transferred from the aforesaid accounts at the time of closure or otherwise shall be charged to tax in the year in which the amount is transferred or withdrawn as per the provisions of the Schedule X.
(3) Where any asset acquired as per the special scheme, or the deposit scheme, referred to in Schedule X, is sold or otherwise transferred in any tax year, it shall be charged to tax in accordance with the provisions of the said Schedule.
Introduction
The site-restoration deduction is tied to a qualifying deposit, not merely an accounting provision for future closure costs. The account's later withdrawals and funded assets are part of the tax calculation.
Key takeaways
Eligible petroleum activity
The special deduction applies to a business prospecting for, extracting or producing petroleum or natural gas in India under an agreement with the Central Government.
Deposit-based deduction
The deduction is based on deposits to a special account or site restoration account and is computed under Schedule X.
Withdrawals and asset transfers
Schedule X governs taxation of withdrawals or transfers from those accounts and transfers of assets acquired under the scheme.
The deduction
Section 49(1) allows an assessee carrying on the business of prospecting, extracting or producing petroleum or natural gas (or both) in India, who has an agreement with the Central Government for this business, a deduction based on deposits to a special account or site restoration account, computed as per the provisions of Schedule X.
Taxation on withdrawal and asset transfer
Section 49(2) provides that any amount withdrawn or transferred from these accounts - at closure or otherwise - is charged to tax in the year of withdrawal or transfer, as per Schedule X.
Section 49(3) provides that where an asset acquired under the special scheme or deposit scheme referred to in Schedule X is sold or otherwise transferred in any tax year, that transfer is charged to tax in accordance with Schedule X.
Deposit and restoration purpose
Identify the qualifying mineral-oil business and the permitted Site Restoration Account or scheme deposit.
Reconcile deposit, withdrawal, restoration spending and any later asset transfer to the section's recapture rules.
Step-by-step flow for applying Section 49
- 1
Does the assessee carry on a business of prospecting, extracting or producing petroleum or natural gas (or both) in India?
- No: Section 49 does not apply.
- Yes: Go to the next step.
- 2
Does the assessee have an agreement with the Central Government for this business?
- No: Section 49(1) is not available.
- Yes: Go to the next step.
- 3
Has a deposit been made to the special account or site restoration account?
The deduction is based on that deposit and is computed as per Schedule X. Section 49 itself states no amount or ceiling.
- No: No deduction under Section 49(1) for the year.
- Yes: Go to the next step.
- 4
Was any amount withdrawn or transferred from the account?
Section 49(2) charges it to tax in the year in which it is withdrawn or transferred, as per Schedule X, whether at closure or otherwise.
- 5
Was an asset acquired under the special scheme or deposit scheme sold or transferred?
Section 49(3) charges that transfer to tax in accordance with Schedule X.
Practical checklist
Do
- Keep the site-restoration scheme approval, deposit evidence and withdrawal-use ledger.
- Check whether a funded asset was transferred within the statutory period.
Avoid
- Do not deduct a general restoration reserve as though it were a qualifying account deposit.
- Do not deduct an expense again if paid out of an amount already deducted through the account.
Illustrative example
Worked example: an oilfield operator's restoration deposit
Hypothetical facts (illustration only, not a real taxpayer): A company produces natural gas from an onshore field in India under an agreement with the Central Government. It makes a deposit into the site restoration account in one tax year. Several years later, at the end of the field's life, it withdraws the balance to restore the site.
Eligibility
The business (producing natural gas in India) and the agreement with the Central Government both satisfy Section 49(1).
Year of deposit
The deduction is based on the deposit and computed as per Schedule X. A general book provision for restoration costs, with no deposit, does not trigger this section.
Year of withdrawal
Under Section 49(2), the withdrawn amount is charged to tax in the year of withdrawal, as per Schedule X. The Schedule decides how restoration spending is treated.
Assets
If an asset was acquired under the scheme and is later sold, Section 49(3) charges that transfer in accordance with Schedule X.
Outcome
- The tax effect is spread across the deposit year, the withdrawal year and any asset transfer year.
- The detailed amounts depend on Schedule X, which should be read with this section.
Glossary
- Site Restoration Account
- The specified account or scheme used for qualifying restoration-related deposits under Section 49.
- Recapture
- Business-income charge when a withdrawn or asset-linked amount breaches the section's conditions.
Frequently asked questions
Who can claim the Site Restoration Fund deduction under Section 49?
Assessees carrying on the business of prospecting, extracting or producing petroleum or natural gas in India, who have an agreement with the Central Government for that business.
Where are the detailed computation rules for this deduction?
In Schedule X of the Act - Section 49 sets out the basic entitlement and the withdrawal/transfer taxation rules, while the detailed mechanics are in that Schedule.
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Get expert guidance on Site Restoration Fund deductionsLast updated 9 October 2026