Tax Laws and Practice · Profits and Gains from Business and Profession

Site Restoration Fund Deduction under Schedule X

Updated 11 October 2026 · Fact-checked

Under section 49 and Schedule X of the Income-tax Act, 2025, a petroleum or natural gas business with a Central Government agreement gets a deduction for deposits in a specified account. The deduction is the lower of the amount deposited and 20% of business profits before this deduction. An audit report is mandatory.

Understand Site Restoration Fund Deduction (Schedule X)

Oil and gas producers must restore the site once extraction ends. This costs a lot, and it falls years after the income is earned. The law lets the business set money aside early and get a tax deduction when it does so.

Section 49 gives the deduction. Schedule X sets the quantum, conditions, withdrawal rules and asset rules. It applies to an assessee who carries on the business of prospecting for, or extracting or producing, petroleum or natural gas, or both, in India, and who has an agreement with the Central Government for that business.

The money must go into a specified account. This is either a special account with the State Bank of India under the special scheme, or a site restoration account under the deposit scheme made by the Ministry of Petroleum and Natural Gas. The deposit must be made before the end of the tax year.

The deduction is a deferral, not a permanent exemption. If the money is withdrawn and not used as the schemes allow, or is withdrawn on closure of the account, it is taxed as business profits. If you spend the money on business expenditure under the scheme, you cannot claim that expenditure again. If you buy certain assets with it, the deduction is lost. A sale of a scheme asset within eight years also triggers tax on the part of the cost linked to the deduction.

Key rules to remember

Quantum of deduction: Deduction = lower of (a) amount deposited in the specified account, and (b) 20% of profits of the business before any deduction under this paragraph; Profits mean those computed under the head Profits and gains of business or profession. Interest credited to the specified account is deemed to be a deposit.
Order of deduction: Deduction under Schedule X is allowed before set off of brought forward loss under section 112; So the 20% cap is applied to profits before the brought forward loss is set off.
Tax on withdrawal at closure: A = B − C; A is deemed business profit of that tax year. B is the amount withdrawn on closure. C is the amount, if any, payable to the Central Government as profit or production share under the agreement.
Asset sold within eight years: Part of cost of asset relatable to the deduction allowed = deemed business profit of the year of sale or transfer; It applies if the sale is before eight years from the end of the tax year of acquisition. It does not apply to a sale to Government, a local authority, a statutory corporation or a Government company.
Double deduction barred: Deduction allowed once for an amount; expenditure met from the account is not deductible; If a deduction is allowed in one tax year, no deduction is allowed for that amount in any other tax year.

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

Use this order for any question on the site restoration fund. Check eligibility first, then compute, then test for later events that bring the amount back to tax.

1Check eligibility. The assessee must carry on petroleum or natural gas business in India under an agreement with the Central Government.
2Confirm the deposit is in a specified account (SBI special account or site restoration account) and was made before the end of the tax year.
3Confirm the accounts are audited and the audit report is furnished by the specified date in section 63. If the assessee is audited under another law, check both reports are furnished by that date.
4Compute business profits before this deduction, and before set off of brought forward loss.
5Take 20% of those profits. The deduction is the lower of that figure and the deposit, counting interest credited to the account as a deposit.
6Test for later events: withdrawal on closure, unutilised withdrawals, purchase of specified articles, or sale of a scheme asset within eight years. Each one brings an amount into business profits.
7State the conclusion with the amount and cite section 49 and Schedule X.

Quickest way: Lower-of-two shortcut

When to use it: Use it for numerical questions asking for the deduction or the taxable profit after the deduction.

Write the profit before this deduction and before brought forward loss.
Write 20% of it next to the deposit amount.
Pick the smaller figure as the deduction.
Subtract it from profit, then set off the brought forward loss.
If the question mentions closure, unused withdrawal or asset sale, add the deemed profit for that year using the relevant rule.

Common mistakes in Site Restoration Fund Deduction (Schedule X)

Taking 20% of profit after setting off brought forward loss
Students follow the usual order of computing income and apply the loss first.
Fix: The deduction is allowed before set off of brought forward loss. Compute 20% on profit before the loss and before this deduction.
Allowing the full deposit regardless of the cap
Students see the word deposit and forget the 20% limit.
Fix: Always compare the deposit with 20% of profits and allow the lower.
Ignoring the audit requirement
The audit condition is at the end of the paragraph and gets missed.
Fix: Write the conditions as a checklist: eligible business, specified account deposit, and audit report by the section 63 date.
Claiming the expenditure again when it is met from the fund
Students treat site restoration spend as an ordinary business expense.
Fix: Expenditure met from the specified account is not deductible. The deduction was already taken on deposit.
Deducting the closure withdrawal fully as taxable without subtracting the Government share
Students forget item C in the formula.
Fix: Taxable amount is the amount withdrawn less any profit or production share payable to the Central Government under the agreement.
Treating a sale of a scheme asset to a Government company as taxable
Students remember the eight-year rule but not the exceptions.
Fix: The rule does not apply to a sale to the Government, a local authority, a statutory corporation or a Government company. It also has a firm to company succession exception with conditions.

Worked examples

Example 1

An assessee with a Central Government agreement for petroleum production has business profit of ₹80,00,000 before any Schedule X deduction. It deposits ₹12,00,000 in a site restoration account before the end of the tax year and meets the audit condition. Compute the deduction and the business income after it, ignoring other items.

Show the solution

Eligibility is met: petroleum business in India, agreement, deposit in specified account, audit done.
20% of profit = 20% × ₹80,00,000 = ₹16,00,000.
Deposit = ₹12,00,000.
Deduction is the lower of ₹12,00,000 and ₹16,00,000, so ₹12,00,000.
Business income after deduction = ₹80,00,000 − ₹12,00,000 = ₹68,00,000.

Answer: Deduction is ₹12,00,000 and business income is ₹68,00,000, under section 49 and Schedule X.

Example 2

An assessee has profit of ₹50,00,000 before Schedule X deduction and a brought forward business loss of ₹10,00,000. It deposits ₹15,00,000 in the special account with SBI and satisfies all conditions. Compute the income after the deduction and the loss set off.

Show the solution

The deduction is allowed before set off of brought forward loss.
20% of profit before the deduction = 20% × ₹50,00,000 = ₹10,00,000.
Deposit = ₹15,00,000.
Deduction = lower of ₹15,00,000 and ₹10,00,000 = ₹10,00,000.
Profit after deduction = ₹50,00,000 − ₹10,00,000 = ₹40,00,000.
Set off brought forward loss of ₹10,00,000: ₹40,00,000 − ₹10,00,000 = ₹30,00,000.

Answer: The deduction is ₹10,00,000 and business income after loss set off is ₹30,00,000. The excess deposit of ₹5,00,000 gets no deduction this year.

Exam tips

Write the conditions as a short list before computing. Examiners give marks for the provision, then the analysis, then the conclusion.
Show the lower-of-two comparison clearly in numerical answers. It carries the marks.
Mention that the deduction is allowed before set off of brought forward loss whenever a loss is given.
In theory questions, cover the tax-back events: closure, unutilised withdrawal, specified articles and asset sale within eight years.
Cite section 49 and Schedule X. Do not cite repealed provisions of the Income-tax Act, 1961.

Practice questions from Profits and Gains from Business and 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?

An assessee carrying on the business of prospecting for, or extracting or producing, petroleum or natural gas in India under an agreement with the Central Government. The assessee must also meet the deposit and audit conditions in Schedule X.

How much is the deduction?

It is the lower of the amount deposited in the specified account and 20% of business profits before making any deduction under this paragraph. Interest credited to the account is treated as a deposit.

What happens if the money is withdrawn from the account?

Withdrawal is allowed only for purposes in the special scheme or deposit scheme. Amounts withdrawn on closure, or withdrawn for business use but not used in that tax year, are taxed as business profits of that year.

Can partners claim the deduction separately if a firm deposits the money?

No. Where the assessee is a firm, association of persons or body of individuals, the deduction is not allowed in computing the income of any partner or member.