Introduction
Are you looking to understand about Understanding Special Provision for Deductions in the Case of Business for Prospecting, etc., for Mineral Oil Section 42 of Income Tax Act 1961?
This detailed article will tell you all about Understanding Special Provision for Deductions in the Case of Business for Prospecting, etc., for Mineral Oil Section 42 of Income Tax Act 1961.
Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning.
The Income Tax Act, 1961, is a comprehensive statute that outlines the provisions for taxation in India. One such provision is Section 42, which provides for special deductions in the case of businesses engaged in prospecting, etc., for mineral oil. The provision aims to encourage businesses to explore and extract mineral oil, which is crucial for India’s energy needs. In this blog, we will discuss the Special Provision for Deductions in the case of business for prospecting, etc., for mineral oil section 42 of Income Tax Act 1961 in detail.
What is the Special Provision for Deductions in the case of business for prospecting, etc., for mineral oil section 42 of Income Tax Act 1961?
Section 42 of the Income Tax Act 1961 provides for special deductions for businesses engaged in prospecting, extraction, or production of mineral oil in India. Mineral oil includes petroleum and natural gas. The provision applies to all taxpayers who are engaged in the above-mentioned activities and have a valid license or lease to carry out such activities.
Who can claim deductions under section 42?
The following entities can claim deductions under Section 42:
- Individuals who are engaged in prospecting, extraction, or production of mineral oil in India.
- Hindu Undivided Families (HUFs) engaged in the above activities.
- Companies, including foreign companies, engaged in the above activities.
What are the benefits of the Special Provision for Deductions in the case of business for prospecting, etc., for mineral oil section 42 of Income Tax Act 1961?
The Special Provision for Deductions in the case of business for prospecting, etc., for mineral oil section 42 of Income Tax Act 1961 provides the following benefits:
Deduction of exploration and drilling expenses
Businesses engaged in prospecting, extraction, or production of mineral oil can claim a deduction for the expenses incurred towards exploration and drilling activities. The deduction can be claimed in the year in which the expenses are incurred or in subsequent years.
Deduction of development expenses
Businesses engaged in the production of mineral oil can claim a deduction for the expenses incurred towards developing the oil field. The deduction can be claimed in the year in which the expenses are incurred or in subsequent years.
Deduction of depreciation on assets
Businesses engaged in prospecting, extraction, or production of mineral oil can claim a deduction for the depreciation on assets used in the above activities. The depreciation can be claimed in the year in which the assets are used or in subsequent years.
FAQs
Q. Can a business claim a deduction for expenses incurred before obtaining a license or lease for prospecting, extraction, or production of mineral oil?
A. No, a business can only claim a deduction for expenses incurred after obtaining a valid license or lease for the above activities.
Q. Can a business claim a deduction for expenses incurred towards environmental protection?
A. Yes, businesses engaged in prospecting, extraction, or production of mineral oil can claim a deduction for expenses incurred towards environmental protection.
Conclusion
The Special Provision for Deductions in the case of business for prospecting, etc., for mineral oil section 42 of Income Tax Act 1961 is a crucial provision for businesses engaged in the exploration and extraction of mineral oil. The provision provides
deductions for exploration and drilling expenses, development expenses, and depreciation on assets used in the above activities. By providing these deductions, the provision aims to incentivize businesses to explore and extract mineral oil, which is crucial for India’s energy needs.
It is important to note that businesses can only claim deductions for expenses incurred after obtaining a valid license or lease for prospecting, extraction, or production of mineral oil. Additionally, businesses can also claim deductions for expenses incurred towards environmental protection.
In conclusion, the Special Provision for Deductions in the case of business for prospecting, etc., for mineral oil section 42 of Income Tax Act 1961 is a beneficial provision for businesses engaged in the exploration and extraction of mineral oil. By providing these deductions, the provision encourages businesses to invest in the exploration and extraction of mineral oil, which is essential for India’s energy security. If you are engaged in the above activities, it is essential to understand this provision to ensure that you claim all the eligible deductions and comply with the Income Tax Act.
Section 42, of Income Tax Act, 1961
Section 42, of Income Tax Act, 1961 states that
(1) For the purpose of computing the profits or gains of any business consisting of the prospecting for or extraction or production of mineral oils in relation to which the Central Government has entered into an agreement with any person for the association or participation of the Central Government or any person authorised by it in such business (which agreement has been laid on the Table of each House of Parliament), there shall be made in lieu of, or in addition to, the allowances admissible under this Act, such allowances as are specified in the agreement in relation—
(a) to expenditure by way of infructuous or abortive exploration expenses in respect of any area surrendered prior to the beginning of commercial production by the assessee ;
(b) after the beginning of commercial production, to expenditure incurred by the assessee, whether before or after such commercial production, in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except assets on which allowance for depreciation is admissible under section 32 :
Provided that in relation to any agreement entered into after the 31st day of March, 1981, this clause shall have effect subject to the modification that the words and figures “except assets on which allowance for depreciation is admissible under section 32” had been omitted; and
(c) to the depletion of mineral oil in the mining area in respect of the assessment year relevant to the previous year in which commercial production is begun and for such succeeding year or years as may be specified in the agreement;
and such allowances shall be computed and made in the manner specified in the agreement, the other provisions of this Act being deemed for this purpose to have been modified to the extent necessary to give effect to the terms of the agreement.
(2) Where the business of the assessee consisting of the prospecting for or extraction or production of petroleum and natural gas is transferred wholly or partly or any interest in such business is transferred in accordance with the agreement referred to in sub-section (1), subject to the provisions of the said agreement and where the proceeds of the transfer (so far as they consist of capital sums)—
(a) are less than the expenditure incurred remaining unallowed, a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of transfer, shall be allowed in respect of the previous year in which such business or interest, as the case may be, is transferred;
(b) exceed the amount of the expenditure incurred remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred in connection with the business or to obtain interest therein and the amount of such expenditure remaining unallowed, shall be chargeable to income-tax as profits and gains of the business in the previous year in which the business or interest therein, whether wholly or partly, had been transferred :
Provided that in a case where the provisions of this clause do not apply, the deduction to be allowed for expenditure incurred remaining unallowed shall be arrived at by subtracting the proceeds of transfer (so far as they consist of capital sums) from the expenditure remaining unallowed.
Explanation.—Where the business or interest in such business is transferred in a previous year in which such business carried on by the assessee is no longer in existence, the provisions of this clause shall apply as if the business is in existence in that previous year;
(c) are not less than the amount of the expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed in respect of the previous year in which the business or interest in such business is transferred or in respect of any subsequent year or years:
Provided that where in a scheme of amalgamation or demerger, the amalgamating or the demerged company sells or otherwise transfers the business to the amalgamated or the resulting company (being an Indian company), the provisions of this sub-section—
(i) shall not apply in the case of the amalgamating or the demerged company; and
(ii) shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the latter had not transferred the business or interest in the business.
Explanation.—For the purposes of this section, “mineral oil” includes petroleum and natural gas.