Chapter XXIII - Miscellaneous
Section 527
Section 527: power to grant tax exemption for mineral oil businesses
Section 527 gives the Central Government a specific, narrow power to modify how income tax applies to specified persons involved in prospecting for, or extracting, mineral oils - reflecting the unique, often foreign-partnership-structured nature of oil and gas exploration contracts in India.
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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) If the Central Government is satisfied that it is necessary or expedient in the public interest, it may, by notification, make an exemption, reduction in rate, or other modification of income-tax for any class of persons specified in sub-section (2) or in regard to the whole or any part of the income of such class of persons or the status in which such class of persons or the members thereof are to be assessed on their income from the business referred to in sub-section (2)(a), effective from tax year beginning on or after 1st April, 1992.
(2) The persons referred to in sub-section (1) shall be the following:— (a) persons with whom the Central Government has entered into agreements for the association or participation of that Government, or any person authorised by that Government in any business of prospecting for or extraction or production of mineral oils; (b) persons providing any services or facilities or supplying any ship, aircraft, machinery or plant (whether by sale or hire) for any business consisting of the prospecting for or extraction or production of mineral oils carried on by that Government, or any person specified by that Government by notification; and (c) employees of the persons referred to in clause (a) or (b).
(3) Every notification issued under this section shall be laid before each House of Parliament.
(4) For the purposes this section,— (a) “mineral oil” includes petroleum and natural gas; (b) “status” means the category of person as defined in section 2(77) under which the assessee is assessed.
Introduction
Section 527 gives the Central Government a notification power to alter income-tax treatment for defined participants in mineral-oil prospecting, extraction or production activities. The operative benefit depends on the actual notification and the qualifying person, income or assessment status.
Key takeaways
Public-interest notification
The Central Government may notify an exemption, rate reduction or other modification when satisfied it is necessary or expedient in the public interest.
Specified oil participants
The power applies to the persons and mineral-oil business arrangements described in subsection (2).
Notification controls
The tax treatment depends on the actual notification, not the existence of this enabling section alone.
What the section allows
If the Central Government is satisfied it is necessary or expedient in the public interest, it may, by notification, grant an exemption, a reduction in rate, or another modification of income-tax for a specified class of persons - or in relation to the whole or part of the income of that class, or the status in which they (or their members) are assessed - concerning their income from the mineral oil prospecting/extraction business referred to in sub-section (2), effective from the tax year beginning on or after 1 April 1992.
Who this can apply to
The persons covered are those specified by the Central Government in relation to this business - typically parties to production-sharing contracts or similar arrangements with the Government of India for exploring and extracting mineral oil resources, where special tax treatment may be agreed as part of the underlying contractual/policy framework.
Applying Section 527 in practice
Enabling power. For public-interest reasons, the Central Government may notify an exemption, rate reduction, other income-tax modification or assessment-status treatment for the specified mineral-oil participants and related employees. It covers qualifying Government participation agreements and specified service, facility, ship, aircraft, machinery or plant suppliers. “Mineral oil” includes petroleum and natural gas.
Step-by-step flow for applying Section 527
- 1
Is the person within a class in Section 527(2)?
(a) persons with whom the Central Government has agreements for its association or participation (or that of a person it authorises) in prospecting for, or extraction or production of, mineral oils; (b) persons providing services or facilities, or supplying any ship, aircraft, machinery or plant (by sale or hire), for such a business carried on by that Government or a person it specifies by notification; (c) employees of persons in (a) or (b).
- No: Section 527 does not apply.
- Yes: Go to the next step.
- 2
Has the Central Government issued a notification under Section 527(1) for that class?
The Government must be satisfied that it is necessary or expedient in the public interest.
- No: Section 527 by itself gives no exemption or reduction.
- Yes: Go to the next step.
- 3
What does the notification provide?
It may make an exemption, reduction in rate or other modification of income-tax, for the whole or part of the income, or about the status in which the persons are assessed on income from the business in Section 527(2)(a). It can be effective from a tax year beginning on or after 1 April 1992.
- 4
Apply the definitions
"Mineral oil" includes petroleum and natural gas. "Status" means the category of person as defined in section 2(77) under which the assessee is assessed (Section 527(4)).
- 5
Check parliamentary laying
Every notification under Section 527 is laid before each House of Parliament (Section 527(3)).
Practical checklist
Do
- Identify the qualifying agreement, service or facility supply, or employment category in sub-section (2).
- Find the applicable Central Government notification and check its effective tax year, covered income and rate or exemption terms.
- Where “mineral oil” or assessment “status” matters, use the definitions in sub-section (4).
- locate the actual notification, covered agreement and person class, income source, effective tax year and notification conditions.
Avoid
- Do not claim a specific exemption or rate from section 527 alone; the section enables a notification.
- Do not assume unrelated oil-sector income is covered without matching the person and income specified in the notification.
Illustrative example
Worked example: a rig supplier and its engineer
Hypothetical facts (illustration only, not a real taxpayer): A company hires out a drilling rig to a person specified by the Central Government by notification, for that person's business of extracting natural gas. One of the company's engineers works on the rig.
Class of the company
Hiring out machinery or plant for a business of extracting mineral oil (natural gas is included) carried on by a person specified by the Government falls in Section 527(2)(b).
Class of the engineer
As an employee of a person in clause (b), the engineer falls in Section 527(2)(c).
Notification
Being in a class is not enough. The company and the engineer must find a notification under Section 527(1) that covers their class and read its exact terms.
Scope
Any exemption, reduction in rate or modification, and the part of income it covers, is only what the notification says.
Outcome
- Both are potentially eligible persons under Section 527(2).
- Any relief depends entirely on the terms of a notification issued under Section 527(1).
Glossary
- Mineral oil
- For section 527, includes petroleum and natural gas.
- Status
- The category of person under section 2(77) in which the assessee is assessed.
Frequently asked questions
Who can benefit from a Section 527 exemption?
Relief requires a Central Government notification within subsection (1). The classes in subsection (2) include persons with the specified Government participation agreements, qualifying providers of services or facilities or suppliers of ships, aircraft, machinery or plant for the stated mineral-oil business, and employees of the persons in those two classes. The notification and all statutory conditions must be checked; relief is not confined to the business operator alone.
Does this apply automatically to any oil and gas company?
No - it requires a specific Central Government notification naming the class of persons and the exemption/modification granted; it isn't a general, automatically-available exemption.
From when can this exemption apply?
Any notification under this section takes effect from the tax year beginning on or after 1 April 1992, per the section's own text.
Need help applying this provision to your situation?
Get specialist advice on mineral oil business taxationLast updated 10 October 2026