Amortisation of expenditure for prospecting certain minerals
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 51(1) of Income Tax Act 2025
51(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.
Section 51(2) of Income Tax Act 2025
51(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.
Section 51(3) of Income Tax Act 2025
51(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.
Section 51(4) of Income Tax Act 2025
51(4) For the purposes of sub-sections (2) and (3), the following expenditure shall be excluded:––
- (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-sections 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.
Section 51(5) of Income Tax Act 2025
51(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-sections (2) and (3) (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.
Section 51(6) of Income Tax Act 2025
51(6) If any part of the instalment for a relevant tax year is not fully allowed, it shall be carried forward to the next year, becoming part of the instalment of that tax year and such carrying forward may continue for each following year, but no instalment shall be carried forward beyond the tenth year from the year in which commercial production began.
Section 51(7) of Income Tax Act 2025
51(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 year or years in which the expenditure specified in sub-sections (2) and (3) 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 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 prescribed.
Section 51(8) of Income Tax Act 2025
51(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 has not taken place.
Section 51(9) of Income Tax Act 2025
51(9) If a deduction under this section is claimed and allowed for any tax year in respect of any expenditure referred to in sub-sections (2) and (3), deduction shall not be allowed for such expenditure under any other provision of this Act for the same or any other tax year.
Section 51(10) of Income Tax Act 2025
51(10) In 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.
FAQs on Section 51 of Income Tax Act 2025
Q1. Who is eligible for deduction under Section 51?
Only an Indian company or a resident person (other than a company) engaged in prospecting, extraction, or production of minerals is eligible.
Q2. From which date is Section 51 applicable?
It is applicable from the assessment year commencing on or after 1st April, 2026.
Q3. What types of minerals are covered under this section?
Only minerals or groups of associated minerals listed in Part A or Part B of Schedule XII are covered.
Q4. What type of expenditure is eligible for amortisation?
Expenditure incurred wholly and exclusively for:
- Operations relating to prospecting of specified minerals, or
- Development of a mine or natural deposit of such minerals.
Q5. In which years should the expenditure be incurred to qualify?
In the year of commercial production and any one or more of the four preceding tax years.
Q6. What types of expenditure are excluded under Section 51(4)?
Excluded expenditures include:
- Cost of acquiring mineral site or rights over it,
- Cost of acquiring mineral deposits or rights,
- Capital expenditure on building, machinery, plant, or furniture eligible for depreciation under Section 33.
Q7. Will expenses reimbursed by others be deductible?
No. Any part of the expenditure met directly or indirectly by others, or recovered through sale, salvage, compensation, or insurance is excluded from deduction [Section 51(3)].
Q8. How much deduction is allowed in a year?
The lower of the following two:
- One-tenth of the eligible expenditure (the “instalment”), or
- Amount sufficient to reduce income from commercial exploitation of the relevant mineral(s) to nil.
Q9. For how many years is the deduction allowed?
For ten tax years starting from the year of commercial production.
Q10. What if the full deduction is not allowed in a year?
The unallowed portion is carried forward to the next year and added to that year’s instalment. However, no carry forward is permitted beyond the tenth year.
Q11. Are there any audit requirements for individuals or non-corporate assessees?
Yes. Such assessees must:
- Get their accounts audited for the relevant years (when expenditure was incurred), and
- Furnish an audit report in the prescribed form by the specified date under Section 63.
Q12. Is the audit report required every year?
No. The audit report is required only for the first year in which the deduction is claimed.
Q13. What happens if an eligible undertaking is transferred under amalgamation or demerger?
- The amalgamating/demerged company cannot claim deduction in the year of transfer.
- The amalgamated/resulting company continues to claim the remaining deduction as if no transfer took place.
Q14. Can the same expenditure be claimed under any other provision of the Act?
No. Once claimed under Section 51, the same expenditure cannot be claimed again under any other section.
Q15. What is “operation relating to prospecting”?
It refers to any operation for exploring, locating, or proving mineral deposits, including those that are infructuous or abortive.
Q16. What is “year of commercial production”?
It is the tax year in which commercial production of the specified mineral(s) commences due to prospecting operations.
Q17. What are “relevant tax years”?
The ten tax years starting from the year of commercial production.
Section 51 of the Income Tax Act, 2025, provides a structured and time-bound tax incentive for businesses engaged in the prospecting, extraction, or production of specified minerals. By allowing the amortisation of qualifying expenditures over a span of ten years, the provision aims to ease the financial burden associated with high upfront costs in mineral exploration and development.
However, the benefit is subject to strict conditions regarding the nature, timing, and audit of expenditure, along with safeguards to prevent duplication of claims. Eligible assessees should ensure meticulous compliance with all procedural requirements to effectively claim and maximise this deduction.
