Chapter IV - Computation of Total Income
Section 51
Section 51: amortisation of mineral prospecting expenditure
Section 51 allows an Indian company or a resident person engaged in prospecting for, extracting or producing minerals to amortise their prospecting-related expenditure over ten years - one-tenth of the qualifying amount each year - rather than claim it upfront.
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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, being an Indian company or a person (other than a company) who is resident in India, who is engaged in any operations relating to prospecting for, or extraction or production of, any mineral, shall be allowed a deduction of an amount equal to one-tenth of the amount of expenditure referred to in sub-section (2), in each of the relevant tax years.
(2) The expenditure referred to in sub-section (1) is the expenditure incurred by the assessee at any time during the year of commercial production and any one or more of the four tax years immediately preceding that year, wholly and exclusively on any operations relating to prospecting for any mineral or group of associated minerals specified in Part A or Part B, respectively, of the Schedule XII or on the development of a mine or other natural deposit of any such mineral or group of associated minerals.
(3) The expenditure under sub-section (2) shall be reduced by such expenditure which is met directly or indirectly by any other person or authority and any sale, salvage, compensation or insurance moneys realised by the assessee in respect of any property or rights brought into existence as a result of the expenditure.
(4) The following expenditure shall be excluded from the expenditure referred to in sub-section (2):–– (a) any expenditure on the acquisition of the site of the source of any mineral or group of associated minerals referred to in the said sub-section or of any rights in or over such site; or (b) any expenditure on the acquisition of the deposits of such mineral or group of associated minerals or of any rights in or over such deposits; or (c) any expenditure of a capital nature in respect of any building, machinery, plant or furniture for which allowance by way of depreciation is admissible under section 33.
(5) The deduction to be allowed under sub-section (1) for any relevant tax year shall be— (a) an amount equal to one-tenth of the expenditure specified in sub-section (2) as reduced by the expenditure mentioned in sub-sections (3) and (4) (such one-tenth being herein referred to as the instalment); or (b) such amount as is sufficient to reduce to nil the income (as computed before making the deduction under this section) of that tax year arising from the commercial exploitation [whether or not such commercial exploitation is as a result of the operations or development referred to in sub-sections (2) and (3)] of any mine or other natural deposit of the mineral or any one or more of the minerals in a group of associated minerals under this section in respect of which the expenditure was incurred, whichever is less.
(6) If any part of the instalment for a relevant tax year is not fully allowed, it shall be carried forward to the subsequent tax year, becoming part of the instalment of that tax year and such carrying forward may continue for each following tax year, but no instalment shall be carried forward beyond the tenth tax year from the tax year in which commercial production began.
(7) Where the assessee is a person other than a company or a co-operative society, no deduction shall be admissible under sub-section (1) unless,–– (a) the accounts of the assessee for the tax year or years in which the expenditure specified in sub-section (2) are incurred have been audited by an accountant, before the specified date referred to in section 63; and (b) the assessee furnishes for the first tax year in which the deduction under this section is claimed, the report of such audit, by such date, in such form and duly signed and verified by such accountant, as may be prescribed.
(8) If an undertaking of an Indian company, entitled for deduction under sub-section (1), is transferred before ten years specified in the said sub-section in a scheme of amalgamation or demerger, to another Indian company, then,–– (a) no deduction shall be allowed to the amalgamating or demerged company for the year in which such amalgamation or demerger takes place; and (b) all the provisions of this section shall continue to apply to the amalgamated or resulting company as it would have applied to the amalgamating or demerged company, as if the amalgamation or demerger had not taken place.
(9) If a deduction under this section is claimed and allowed for any tax year in respect of any expenditure referred to in sub-section (2), deduction shall not be allowed for such expenditure under any other provision of this Act for the same or any other tax year.
(10) For the purposes of this section,— (a) “operation relating to prospecting” means any operation undertaken for the purposes of exploring, locating or proving deposits of any mineral and includes any such operation which proves to be infructuous or abortive; (b) “year of commercial production” means the tax year in which as a result of any operation relating to prospecting, commercial production of any mineral or any one or more of the minerals in a group of associated minerals specified in Part A or Part B, respectively, of Schedule XII, commences; (c) “relevant tax years” means the ten tax years beginning with the year of commercial production.
Introduction
The mineral prospecting allowance applies only to specified minerals, eligible taxpayers and a defined spending window around commercial production. Its base is reduced for outside funding and excluded asset costs before the ten-year spread.
Key takeaways
Mineral prospecting relief
An Indian company or resident non-company may amortise qualifying mineral prospecting or development expenditure over ten tax years, beginning with the year commercial production starts.
Excluded costs
Expenditure on acquiring the site or deposit rights, and amounts met by another person or authority, are excluded from the eligible base.
The basic deduction
Section 51(1) allows a deduction of one-tenth of the qualifying expenditure (defined in Section 51(2)) in each of the relevant tax years, for an assessee (Indian company, or resident person other than a company) engaged in operations relating to prospecting, extraction or production of any mineral.
Section 51(2) defines the qualifying expenditure as amounts incurred at any time during the year of commercial production and any one or more of the four tax years immediately preceding it, wholly and exclusively on prospecting operations for a mineral (or group of associated minerals) specified in Schedule XII, Part A or B, or on developing a mine or other natural deposit of such minerals.
What reduces or is excluded from the qualifying amount
Section 51(3) reduces the qualifying expenditure by any part met directly or indirectly by another person/authority, and by any sale, salvage, compensation or insurance moneys realised from property or rights that arose from the expenditure.
Section 51(4) excludes: expenditure on acquiring the site of the mineral deposit or rights over it; expenditure on acquiring the mineral deposits themselves or rights over them; and capital expenditure on buildings, machinery, plant or furniture that is eligible for depreciation under Section 33.
How much is deducted each year, and carry-forward
Section 51(5) allows, for each relevant tax year, the lower of: one-tenth of the qualifying expenditure (the "instalment"), or the amount needed to reduce to nil the income from commercial exploitation of the relevant mine/deposit for that year.
Section 51(6) allows any unabsorbed part of an instalment to be carried forward and added to the following year's instalment, continuing for each subsequent year, but no instalment can be carried forward beyond the tenth tax year from the year commercial production began.
Audit requirement and continuity on reorganisation
Section 51(7) requires an assessee other than a company or co-operative society to have its accounts for the relevant year(s) audited by an accountant before the specified date under Section 63, and to furnish the audit report in the prescribed form for the first year the deduction is claimed.
Section 51(8) provides that if an Indian company's undertaking (entitled to this deduction) is transferred before the ten-year period expires, in a scheme of amalgamation or demerger to another Indian company, no deduction is allowed to the amalgamating/demerged company for the transfer year, and the provisions continue to apply to the amalgamated/resulting company as before.
Section 51(9) bars claiming a deduction for the same expenditure under any other provision of the Act once it has been claimed and allowed under this section.
Step-by-step flow for applying Section 51
- 1
Is the assessee an Indian company or a resident person (other than a company) engaged in prospecting for, or extracting or producing, any mineral?
- No: Section 51 does not apply.
- Yes: Go to the next step.
- 2
Identify the qualifying expenditure window
The window is the year of commercial production and any one or more of the four tax years immediately before it. The expenditure must be wholly and exclusively on prospecting for a Schedule XII (Part A or B) mineral, or on developing such a mine or deposit.
- 3
Remove exclusions and reductions
Exclude costs of acquiring the site, the deposits or rights over them, and depreciable capital expenditure on building, machinery, plant or furniture (Section 51(4)). Reduce by amounts met by any other person or authority and by sale, salvage, compensation or insurance moneys (Section 51(3)).
- 4
Compute the instalment and the yearly deduction
The instalment is one-tenth of the net qualifying expenditure. For each relevant tax year, deduct the lower of the instalment and the income from commercial exploitation of the mine or deposit (computed before this deduction) (Section 51(5)).
- 5
Carry forward any unabsorbed instalment
Add it to the next year's instalment. Nothing can be carried beyond the tenth tax year from the year commercial production began (Section 51(6)).
- 6
Check the audit and reorganisation conditions
A person other than a company or co-operative society needs an accountant's audit and a prescribed report (Section 51(7)). On amalgamation or demerger, Section 51(8) applies. Section 51(9) bars a second deduction for the same expenditure.
Practical checklist
Do
- Identify the mineral in Schedule XII and the first year of commercial production.
- List qualifying prospecting and mine-development spend from that year and the four preceding years.
- Remove site/deposit acquisition, depreciable capital assets, third-party funding and recoveries before calculating instalments.
Avoid
- Do not start the ten-year allowance before the statutory commercial-production trigger.
- Do not include the purchase price of the mineral deposit or site rights.
Illustrative example
Worked example: ten-year amortisation with a carry-forward
Hypothetical facts (illustration only, not a real taxpayer): An Indian company spends ₹3 crore over the year of commercial production and the three years before it, on prospecting for and developing a deposit of a Schedule XII mineral. The ₹3 crore includes ₹30,00,000 to acquire rights over the site and ₹40,00,000 on depreciable plant. A government body meets ₹20,00,000 of the cost, and ₹10,00,000 is realised as salvage. Assumed: income from commercial exploitation (before this deduction) is ₹12,00,000 in the first relevant tax year and ₹50,00,000 in the second.
Exclusions under Section 51(4)
₹3,00,00,000 - ₹30,00,000 (site rights) - ₹40,00,000 (depreciable plant) = ₹2,30,00,000.
Reductions under Section 51(3)
₹2,30,00,000 - ₹20,00,000 (met by another authority) - ₹10,00,000 (salvage) = ₹2,00,00,000.
Instalment
One-tenth of ₹2,00,00,000 = ₹20,00,000.
First relevant tax year
The deduction is the lower of ₹20,00,000 and income of ₹12,00,000, so ₹12,00,000. The unabsorbed ₹8,00,000 is carried forward.
Second relevant tax year
The instalment becomes ₹20,00,000 + ₹8,00,000 = ₹28,00,000. Income is ₹50,00,000, so the full ₹28,00,000 is deducted.
Outcome
- The deduction is spread over the ten relevant tax years, limited each year by the mine's income.
- Any amount still unabsorbed cannot be carried beyond the tenth tax year from the start of commercial production.
- The ₹40,00,000 of plant is dealt with through depreciation under Section 33, not this section.
Glossary
- Relevant tax years
- The years over which qualifying Section 51 expenditure is deducted in ten instalments.
- Commercial production
- The business milestone used to identify the section's spending window and instalment start.
Frequently asked questions
Over how many years is mineral prospecting expenditure deducted?
Ten years - one-tenth of the qualifying expenditure (as reduced under Section 51(3) and (4)) is deducted in each relevant tax year, subject to being capped at the income from commercial exploitation of the relevant mine or deposit for that year.
What happens if the full instalment cannot be absorbed in a year?
Under Section 51(6), the unabsorbed part is carried forward and added to the next year's instalment, and this can continue year after year, but no instalment can be carried beyond the tenth tax year from the year commercial production began.
Does this deduction cover the cost of buying the mineral deposit itself?
No - Section 51(4) specifically excludes expenditure on acquiring the site of the mineral deposit, the deposits themselves, or rights over either, as well as capital expenditure on buildings/machinery/plant/furniture eligible for ordinary depreciation.
Need help applying this provision to your situation?
Get expert help amortising your mineral prospecting expenditureLast updated 10 October 2026