Amortisation of Expenditure for Prospecting Certain Minerals: Clause 51 of the Income Tax Bill, 2025 vs. Section 35E of the Income Tax Act, 1961

Clause 51 Amortisation of expenditure for prospecting certain minerals.

Income Tax Bill, 2025

Introduction

Clause 51 of the Income Tax Bill, 2025, introduces provisions for the amortisation of expenditure incurred in prospecting for certain minerals. This clause is significant in the context of taxation as it aims to provide a structured deduction mechanism for businesses engaged in mineral prospecting and extraction activities. The clause is designed to incentivize the exploration and development of mineral resources by allowing for the amortisation of related expenditures over a specified period.

In this article, we will explore the objectives, detailed provisions, and practical implications of Clause 51. Additionally, we will conduct a comparative analysis with the existing Section 35E of the Income Tax Act, 1961, to understand the evolution and potential impact of these legislative changes.

Objective and Purpose

The primary objective of Clause 51 is to provide a tax deduction for expenditures incurred in the prospecting, extraction, or production of minerals. By allowing such deductions, the legislation seeks to encourage investment in the mining sector, which is crucial for economic development and resource management. The clause also aims to streamline the deduction process by specifying the types of expenditures eligible for amortisation and the conditions under which deductions can be claimed.

Historically, similar provisions have been in place u/s 35E of the Income Tax Act, 1961. The new clause aims to refine these provisions to better align with contemporary industry practices and economic policies.

Detailed Analysis

Key Provisions of Clause 51

Clause 51 outlines several key provisions regarding the amortisation of expenditures:

• Eligibility: The clause applies to Indian companies and resident individuals engaged in mineral prospecting, extraction, or production.
• Deduction Mechanism: A deduction of one-tenth of the specified expenditure is allowed annually over ten tax years, starting from the year of commercial production.
• Expenditure Coverage: The clause covers expenditures incurred during the year of commercial production and the four preceding years, provided they are wholly and exclusively related to prospecting or mine development.
• Exclusions: Expenditures on acquiring mineral sites, deposits, or capital assets eligible for depreciation are excluded from deductions.
• Carry Forward: Unutilized deductions can be carried forward to subsequent years, but not beyond the tenth year from the start of commercial production.
• Audit Requirement: For non-corporate entities, accounts must be audited, and audit reports submitted to claim deductions.
• Transfer of Undertakings: In cases of amalgamation or demerger, deductions continue for the resulting company, but not for the transferring company in the year of transfer.
• Prohibition of Double Deduction: Expenditures allowed under this clause cannot be claimed under other provisions of the Act.

Comparative Analysis with Section 35E of the Income Tax Act, 1961

Section 35E of the Income Tax Act, 1961, serves as the predecessor to Clause 51. While both provisions share similar objectives, there are notable differences:

• Scope of Expenditure: Both provisions allow deductions for expenditures related to prospecting and mine development. However, Clause 51 specifies a broader range of eligible minerals and aligns with updated schedules.
• Deduction Period: Both provisions allow for a ten-year deduction period, but Clause 51 provides clearer guidelines on the carry-forward mechanism.
• Audit Requirements: The audit requirements are consistent across both provisions, ensuring accountability and compliance.
• Transfer Provisions: Clause 51 explicitly addresses both amalgamation and demerger scenarios, whereas Section 35E was amended over time to include demergers.
• Terminology and Structure: Clause 51 uses updated terminology and a more structured format, reflecting modern legislative drafting practices.

Practical Implications

Clause 51 has several practical implications for stakeholders:

• Businesses: Companies engaged in mineral prospecting can benefit from tax savings, encouraging further investment in the sector.
• Compliance: Entities must ensure compliance with audit and reporting requirements to claim deductions successfully.
• Economic Impact: The provision may stimulate growth in the mining industry, contributing to economic development and job creation.

Conclusion

Clause 51 of the Income Tax Bill, 2025, represents a significant step towards modernizing tax provisions related to mineral prospecting. By refining the deduction mechanism and aligning with contemporary industry practices, the clause aims to foster growth in the mining sector while ensuring compliance and accountability. As the Bill progresses through legislative processes, stakeholders should remain informed about potential amendments and their implications.

Full Text:

Clause 51 Amortisation of expenditure for prospecting certain minerals.

Dated: 8-3-2025