Direct and Indirect Taxation · Profits and Gains of Business or Profession

Site Restoration Fund Deduction under the Income-tax Act, 2025

Updated 10 October 2026 · Fact-checked

The site restoration fund deduction lets an eligible oil and gas business deduct money deposited for future site restoration, limited to the lower of the amount deposited and 20% of business profits before this deduction. Amounts withdrawn and not used for the approved purpose, and any balance on closure, are taxed as business income of the year of withdrawal.

Understand Site Restoration Fund Deduction (Schedule X)

Companies that explore for or produce petroleum or natural gas must later dismantle their facilities and restore the site. This cost falls years after the income is earned. The tax law lets the business set money aside every year, and the deposit is allowed as a deduction. This matches the cost to the years that earn the income.

The deduction is meant only for an assessee 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. An ordinary manufacturer or trader cannot claim it. The money must be deposited in a specified account with a bank or in the notified site restoration scheme. Your own bank balance does not qualify.

The deposit must be made before the due date for furnishing the return of income. A deposit made after that date earns no deduction for that year.

The deduction is capped. You get the lower of the amount actually deposited and 20% of the profits of that business. The profits are computed under the head Profits and Gains of Business or Profession before this deduction.

The benefit is a deferral, not a permanent exemption. Money withdrawn from the account and applied for the approved restoration purpose is not taxed on withdrawal. The deduction was already allowed on deposit, so the expenditure on restoration is not allowed again as a deduction. Money withdrawn and not utilised for the approved purpose, and any balance left when the account or scheme is closed, is business income of the year of withdrawal.

This rule continues the former s.33ABA of the 1961 Act. The exact section number or Schedule entry for it in the Income-tax Act, 2025 is not confirmed here, so check it in your supplied text and quote only what you can verify. Use the 2025 Act's terms (tax year, not assessment year) in your answers.

Key rules to remember

Deduction for deposit: Deduction = Lower of (Amount deposited in the year ; 20% × Profits of the oil/gas business before this deduction); Compute profits under Profits and Gains of Business or Profession first. The cap is 20% of those profits, not of total income. The deposit must be made before the due date for furnishing the return.
Who is eligible: Assessee in petroleum / natural gas prospecting, extraction or production in India under a Central Government agreement; No other business qualifies. State this condition at the start of your answer.
Where to deposit: Deposit in the specified site restoration account or notified scheme, before the due date for furnishing the return of income; A deposit elsewhere, or after the due date, earns no deduction.
Withdrawal used for restoration: Amount withdrawn and applied for the approved restoration purpose: not taxed on withdrawal; the restoration expenditure is not allowed as a deduction again; The deduction was already allowed at deposit time. This holds only if the withdrawal is applied for the approved purpose.
Withdrawal not used for the purpose: Amount withdrawn and not utilised for the approved purpose (including balance on closure) = business income of the year of withdrawal; Add it to the business income of that year, whether or not the business made a profit.

How to solve Site Restoration Fund Deduction (Schedule X) questions

Use this order for any question on the site restoration fund deduction.

1Check eligibility: is the assessee in petroleum or natural gas prospecting, extraction or production in India under a Central Government agreement? If not, no deduction.
2Confirm the deposit went into the specified account or scheme before the due date for furnishing the return. Ignore amounts kept elsewhere or deposited late.
3Compute business profits before this deduction, after all other business deductions the question requires.
4Take 20% of that profit figure.
5Deduction is the lower of the amount deposited and the 20% figure. Subtract it from profits.
6For a withdrawal, split it: amount applied for approved restoration (not taxed, expenditure not deducted again) and amount not utilised for the purpose or left on closure (added to business income of the year of withdrawal).
7Write the final business income and state the reason for each treatment in one line.

Quickest way: Lower-of check in 30 seconds

When to use it: Use for MCQs and for the calculation part of a written answer when figures are given.

Write profit before this deduction and multiply by 20%.
Compare with the deposit. The smaller number is the deduction.
For withdrawals, ask only: was it applied for approved restoration? If yes, no addition and no second deduction. If no, add the amount to income of the year of withdrawal.
Scan the question for traps: a deposit outside the specified account, a late deposit, or a business that is not oil and gas.

Common mistakes in Site Restoration Fund Deduction (Schedule X)

Claiming the full deposit even when it exceeds 20% of profits.
Students remember the deduction is for deposits and forget the cap.
Fix: Always compute both figures and write 'lower of' in your working.
Calculating 20% on total income or gross total income.
Mixing up this cap with Chapter VI-A style limits.
Fix: Use profits of the eligible business under the business head, before this deduction.
Allowing the deduction to any mining or manufacturing business.
The word 'site' sounds general.
Fix: Restrict it to petroleum and natural gas prospecting, extraction or production under the Central Government agreement.
Taxing the withdrawal that was applied for approved restoration.
Students think every withdrawal reverses the deduction.
Fix: Only the amount not utilised for the approved purpose, including the balance on closure, is added to income.
Claiming the restoration expense as a business deduction after withdrawing from the account.
The spending looks like an ordinary revenue expense.
Fix: The deduction was already allowed on deposit. The expenditure on restoration is not allowed as a deduction again.
Using 'assessment year' or old Act section numbers.
Habit from the 1961 Act.
Fix: Use 'tax year' and the terms of the Income-tax Act, 2025. Quote a section or Schedule entry only if you can verify it.

Worked examples

Example 1

An Indian company produces natural gas under an agreement with the Central Government. Its business profit before the site restoration deduction is ₹80,00,000. It deposited ₹10,00,000 in the specified site restoration account before the due date for furnishing its return. Compute the deduction and business income.

Show the solution

Eligibility: gas production in India under a Central Government agreement, so the company qualifies.
Deposit is in the specified account and made in time, so it is eligible.
20% of profit = 20% × ₹80,00,000 = ₹16,00,000.
Deduction = lower of ₹10,00,000 and ₹16,00,000 = ₹10,00,000.
Business income = ₹80,00,000 − ₹10,00,000 = ₹70,00,000.

Answer: Deduction ₹10,00,000; business income ₹70,00,000.

Example 2

An oil producing assessee has business profit of ₹30,00,000 before this deduction and deposits ₹12,00,000 in the site restoration account in time in the tax year. In a later year it withdraws ₹9,00,000 from the account, of which ₹7,00,000 is spent on approved restoration work and ₹2,00,000 is used for general working capital. Find the deduction in the first year and the tax effect of the withdrawal.

Show the solution

20% of ₹30,00,000 = ₹6,00,000.
Deduction = lower of ₹12,00,000 and ₹6,00,000 = ₹6,00,000. The excess deposit of ₹6,00,000 gets no deduction in that year.
Business income of the first year = ₹30,00,000 − ₹6,00,000 = ₹24,00,000.
In the later year, ₹7,00,000 was applied for approved restoration. It is not added to income, and the restoration expenditure is not allowed as a deduction again.
The ₹2,00,000 used for working capital is not utilised for the approved purpose, so it is added to business income of the year of withdrawal.

Answer: First-year deduction ₹6,00,000 (business income ₹24,00,000). In the withdrawal year, ₹2,00,000 is added to business income; ₹7,00,000 is not taxed and its expenditure is not deducted again.

Exam tips

Numerical questions almost always test the lower-of rule. Show both figures, then pick the smaller.
Start any theory answer with eligibility: petroleum or natural gas, India, Central Government agreement.
For MCQs, watch for options that use the deposit amount when the 20% figure is lower, or the other way round.
Always state the treatment of both withdrawal types: applied for the approved purpose and not utilised for it.
Mention the deposit timing: before the due date for furnishing the return.
Write 'tax year' and 'Income-tax Act, 2025' in the answer to keep the terminology correct.

Practice questions from Profits and Gains of Business or Profession

Site Restoration Fund Deduction (Schedule X) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Site Restoration Fund Deduction (Schedule X): frequently asked questions

Who can claim the site restoration fund deduction under the Income-tax Act, 2025?

An assessee carrying on the business of prospecting for, or extracting or producing, petroleum or natural gas or both in India under an agreement with the Central Government. Other businesses cannot claim it.

What is the limit on the deduction and when must the deposit be made?

The deduction is the lower of the amount deposited in the specified account and 20% of the profits of the business computed before this deduction. The deposit must be made before the due date for furnishing the return of income. Any deposit above the limit gets no deduction for that year.

How is a withdrawal from the site restoration account taxed?

If the money is applied for the approved restoration purpose, it is not taxed, and the restoration expenditure is not allowed as a deduction again. If it is withdrawn and not utilised for that purpose, or a balance remains on closure, it is business income of the year of withdrawal.

Is this deduction a permanent tax saving?

No. It is mainly a timing benefit. The deduction is allowed on deposit, and amounts not used for the approved purpose come back into income later.