The Finance Bill, 2026 proposes to extend tax deductibility for expenditure incurred on prospecting and exploration by expanding the list of eligible minerals under Schedule XII of the Income-tax Act, 2025. Section 51 currently allows Indian companies and resident taxpayers engaged in mineral operations to claim deferred deductions over ten years, starting from the year of commercial production, for expenses incurred on prospecting, mine development, or extraction of specified minerals. To promote domestic exploration of strategically important resources, the amendment adds several critical minerals—including lithium, graphite, potash, beryllium-bearing minerals, niobium-bearing minerals, tantalum-bearing minerals, indium-bearing minerals, rhenium-bearing minerals, and glauconite—to Part A of Schedule XII. As a result, expenditure incurred on prospecting and exploration of these critical minerals will qualify for the same deferred deduction regime. The measure is aimed at encouraging investment in mineral exploration and strengthening supply chains for energy transition and advanced technologies. The amendment will apply from tax year 2026–27 onwards.
Allowing expenditure on prospecting of critical minerals as deduction
Section 51 of the Act provides for tax deductibility of expenses incurred by an Indian company or resident taxpayers (other than companies) engaged in any operations relating to prospecting or extraction or production of the minerals mentioned in Part A and Part B of the Schedule XII of the Act. This section allows deduction, on deferred basis (over a span of 10 years from the year of commercial production of any specified mineral), in respect of expenses incurred wholly and exclusively on operations relating to prospecting or on the development of mine or other natural deposit of specified minerals incurred at any time during the year of commercial production and any one or more of the four years immediately preceding the year of commercial production.
2. In order to incentivise the prospecting and exploration of the critical minerals, it is proposed to expand the list of minerals in Schedule XII of the Act, thereby making expenditure on prospecting and exploring of such critical minerals also eligible for deduction as per the provision of section 51 of the Act.
3. It is proposed to amend schedule XII of the Act.
4. This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.
[Clause 112]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 112 of the Bill seeks to amend Schedule XII to the Income-tax Act, 2025.
Part A of the said Schedule provides for the list of minerals or group of minerals eligible for deduction on deferred basis for prospecting, or extraction or production or development of a mine or other natural deposit of the specified minerals.
It is proposed to amend the said Part so as to incentivise the prospecting and exploration of the critical minerals by expanding the list of minerals to make the expenditure on such prospecting and exploring of critical minerals also eligible for deduction as per the provisions of section 51 of the said Act.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
112. Amendment of Schedule XII.
In Schedule XII to the Income-tax Act, in Part A, after serial number 27 and the entries relating thereto, the following shall be inserted, namely:––
“28. Beryllium bearing minerals.
29. Glauconite.
30. Graphite.
31. Indium bearing minerals.
32. Lithium bearing minerals.
33. Niobium bearing minerals.
34. Potash.
35. Rhenium bearing minerals.
36. Tantalum bearing minerals.”.
