The assessee carrying on the business of prospecting, extraction or production of petroleum or natural gas in India and depositing the amount in ‘Special account’ or ‘Site Restoration account’ is eligible to claim deduction under section 33ABA of the Income Tax Act.

The present article briefly lists down the conditions to be satisfied for claiming deduction under section 33ABA; the amount of available deduction and various other provisions governing deduction under section 33ABA.

Conditions for claiming deduction under section 33ABA of the Income Tax Act

In order to claim deduction under section 33ABA, the assessee needs to satisfy the following list of conditions-

1. The assessee should be engaged in carrying on any of the following business-

a. Prospecting for petroleum or natural gas in India; or

b. Extraction of petroleum or natural gas in India; or

c. Production of petroleum or natural gas in India.

2. The assessee engaged in carrying on any of the above business should deposit an amount into any of the following accounts-

a. A special account maintained with the State Bank of India; or

b. Site Restoration Account.

3. The amount should be deposited before the end of the respective previous year.

4. The amount deposited in the account can be withdrawn only for the specified purposes.

Amount of deduction available under section 33ABA

Lower of the following amount is available as a deduction under section 33ABA

  • The amount deposited under ‘special account’ and/ or ‘site restoration account’; or
  • 20% of the profit (before deduction) chargeable under the head ‘Profits and gains of business or profession’.

Withdrawal amount taxable under the head ‘Profits and gains of business or profession’-

Under the following circumstances, the amount withdrawn or not utilized will be deemed to be profits and gains of business or profession and taxed accordingly-

1. The amount withdrawn is utilized for purchase of the following-

a. Installation of plant or machinery in office premises or residential accommodation (including accommodation in the nature of guest house),

b. Office appliances (excluding computers),

c. Installation of plant or machinery, wherein, the entire amount is allowed as a deduction under the head ‘Profits and gains of business or profession’.

d. Installation of new plant or machinery in an industrial undertaking for the purposes of the business of construction or manufacture or production of article/ thing as specified in the Eleventh Schedule.

2. The amount withdrawn on the closure of the account. However, the amount payable, if any, to the Government in the form of profit or production share will not be included here.

3. The amount withdrawn but not utilized (wholly or partly), within the respective previous year, for the specified purpose.

4. The amount is utilized for the acquisition of an asset. However, the said asset is sold/ transferred before the expiry of eight years from the end of the previous year in which the asset was acquired. An exception to the same are-

a. Cases, wherein, the asset is sold/ transferred to Government, a Government Company, a local authority or a corporation; or

b. Cases, wherein, the asset is sold/ transferred during the succession of a firm by a company and the deposit account continues to apply to the company.

Some important notable points elated to deduction under section 33ABA

  • The amount of interest credited in the ‘special account’ or ‘site restoration account’ will be deemed as deposit and accordingly available as a deduction under section 33ABA.
  • It is mandatory for the assessee, claiming deduction under section 33ABA, to get the books of accounts audited from the practising chartered accountant. Accordingly, the assessee is required to furnish the report of audited accounts in Form No. 3AD.
  • When the amount is withdrawn and utilized for specified expenditure. Notably, such expenditure will not be allowed while calculating the income under the head ‘Profits and gains of business or profession’.

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