Section 51
Section 51: amortisation of mineral prospecting expenditure
Section 51 allows an Indian company or a resident person engaged in prospecting for, extracting or producing minerals to amortise their prospecting-related expenditure over ten years - one-tenth of the qualifying amount each year - rather than claim it upfront.
The basic deduction
Section 51(1) allows a deduction of one-tenth of the qualifying expenditure (defined in Section 51(2)) in each of the relevant tax years, for an assessee (Indian company, or resident person other than a company) engaged in operations relating to prospecting, extraction or production of any mineral.
Section 51(2) defines the qualifying expenditure as amounts incurred at any time during the year of commercial production and any one or more of the four tax years immediately preceding it, wholly and exclusively on prospecting operations for a mineral (or group of associated minerals) specified in Schedule XII, Part A or B, or on developing a mine or other natural deposit of such minerals.
What reduces or is excluded from the qualifying amount
Section 51(3) reduces the qualifying expenditure by any part met directly or indirectly by another person/authority, and by any sale, salvage, compensation or insurance moneys realised from property or rights that arose from the expenditure.
Section 51(4) excludes: expenditure on acquiring the site of the mineral deposit or rights over it; expenditure on acquiring the mineral deposits themselves or rights over them; and capital expenditure on buildings, machinery, plant or furniture that is eligible for depreciation under Section 33.
How much is deducted each year, and carry-forward
Section 51(5) allows, for each relevant tax year, the lower of: one-tenth of the qualifying expenditure (the "instalment"), or the amount needed to reduce to nil the income from commercial exploitation of the relevant mine/deposit for that year.
Section 51(6) allows any unabsorbed part of an instalment to be carried forward and added to the following year's instalment, continuing for each subsequent year, but no instalment can be carried forward beyond the tenth tax year from the year commercial production began.
Audit requirement and continuity on reorganisation
Section 51(7) requires an assessee other than a company or co-operative society to have its accounts for the relevant year(s) audited by an accountant before the specified date under Section 63, and to furnish the audit report in the prescribed form for the first year the deduction is claimed.
Section 51(8) provides that if an Indian company's undertaking (entitled to this deduction) is transferred before the ten-year period expires, in a scheme of amalgamation or demerger to another Indian company, no deduction is allowed to the amalgamating/demerged company for the transfer year, and the provisions continue to apply to the amalgamated/resulting company as before.
Section 51(9) bars claiming a deduction for the same expenditure under any other provision of the Act once it has been claimed and allowed under this section.
Frequently asked questions
Over how many years is mineral prospecting expenditure deducted?
Ten years - one-tenth of the qualifying expenditure (as reduced under Section 51(3) and (4)) is deducted in each relevant tax year, subject to being capped at the income from commercial exploitation of the relevant mine or deposit for that year.
What happens if the full instalment cannot be absorbed in a year?
Under Section 51(6), the unabsorbed part is carried forward and added to the next year's instalment, and this can continue year after year, but no instalment can be carried beyond the tenth tax year from the year commercial production began.
Does this deduction cover the cost of buying the mineral deposit itself?
No - Section 51(4) specifically excludes expenditure on acquiring the site of the mineral deposit, the deposits themselves, or rights over either, as well as capital expenditure on buildings/machinery/plant/furniture eligible for ordinary depreciation.
Related sections
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