Section 33ABA of the Income Tax Act: A Guide on Deduction for Site Restoration Fund
- Farheen Mukadam
- Aug 19
- 6 min read
The Income Tax Act contains a few clauses that permit deductions for allocating a specific sum of money to funds designated for particular uses. All assessees or taxpayers involved in specific activities in India are subject to Section 33ABA. These include prospecting for petroleum or natural gas, extracting or producing petroleum or natural gas, or both. In this article, we will discuss Section 33ABA in detail.
Table of Contents
What is Section 33ABA of the Income Tax Act?
Petroleum and natural gas companies can deduct expenses from the sum allocated for site rehabilitation as per Section 33ABA of the Income Tax Act. For these businesses, the Central Government has a contract with these assessees. To ensure that firms do not run out of money when it comes to reviving the site at the conclusion of their business cycle, these provisions in the act encourage setting aside money for site damage restoration. By doing this, the risks of leaving the site environmentally unfit would be avoided, and a smooth restoration would be guaranteed.
What is the Site Restoration Fund?
Organisations engaged in mining, quarrying, waste treatment, oil and gas exploration, etc., are in charge of maintaining site restoration funds. Contamination of the business location is an inevitable consequence of these types of operations. So, these commercial entities typically maintain a fund. Following company operations, the site is cleaned up and any contaminations or damages are repaired to the point that the general public can use it safely and access it for other purposes. This explains why the site restoration money is kept up to date.
Eligibility for Deduction under Section 33ABA
Only the following companies involved in the petroleum and natural gas industries are eligible for the deduction under this section.
Prospecting: The process of locating possible oil and gas deposits.
Extraction: Taking something out of the fields
Production - Refining the crude oil into fuel and other valuable items
Furthermore, the Central Government ought to have signed a contract with such a company. The assessee has to make a deposit:
With the State Bank of India in an account (henceforth referred to as a special account) maintained
In an account (henceforth referred to as the "Site Restoration Account") opened by the assessee
In accordance with and for the purposes outlined in a scheme authorised by the Government of India in the Ministry of Petroleum & Natural Gas
When is Deduction Not Allowed under Section 33ABA
Deduction is not allowed for any amount used to buy:
Any office appliances (allowed for computers)
Machinery in any office premises/residential accommodation,
Machinery whose entire actual cost can already be deducted from any given fiscal year
Machinery placed in an industrial project for the purpose of building, manufacturing, or producing any item listed in the Eleventh Schedule
Requirements for the Applicability of Section 33ABA
Section 33ABA of the Site Restoration Fund requires the assessee to meet the following requirements:
For this type of business, the assessee and the Central Government have reached an agreement.
A deduction that has been claimed for a deposit made in one financial year cannot be used for the same deposit in any subsequent financial year.
For the fiscal year for which it is claiming a deduction, the company should have its accounts audited. To claim this deduction, an audit conducted in accordance with the Income Tax Act's rules is not required.
To claim a deduction under this section, an audit conducted in accordance with any other law and providing the report and the required form would be sufficient.
Any money that has already been deposited and for which a deduction has been claimed must be returned if it is taken out for any reason other than those listed in the plan. Simply put, only the reasons listed in the plan should be used to withdraw the contribution.
Deduction under Section 33ABA
The money placed into a special bank account at the State Bank of India under a plan that has been approved by the Ministry of Petroleum and Natural Gas or a Site Restoration Account specified in a plan that has been formulated by the Ministry of Petroleum and Natural Gas may be eligible for deduction.
Quantum of Deductions Allowed under Section 33ABA
The deduction that can be claimed by the qualified business under Section 33ABA is the amount deposited in the account. Notably, 20% of the company's profits as determined by the Income Tax Act is the maximum deduction that can be taken. Funds must be deposited prior to the financial year's conclusion. The sum credited to the aforementioned bank accounts as interest may alternatively be regarded as a deposit. So, interest can also be included. It is important to compute profits without deducting the deductions listed in this section. Additionally, brought-forward loss should not be deducted from the section's profits.
Illustration: The company XYZ Ltd. is in the business of turning crude oil into various petroleum products. In order to conduct this business, it has a contract with the Central Government. Under the program authorised by the Ministry of Petroleum and Natural Gas, it opened a bank account with SBI and makes annual contributions to the site repair fund. On February 25, 2025, it deposited Rs. 45,000,000 into the account. The total amount of interest credited for the year is Rs. 5,00,000. The total deposit made for the financial year is Rs. 50,000,000 since interest credited is also regarded as a deposit. Profit of XYZ Ltd. is calculated as follows:
Particulars | Amount (Rs.) |
Profits earned during the year (1) | 2,00,00,000 |
Less - Set off of brought forward losses | (10,00,000) |
(2) | 1,90,00,000 |
Less - Deduction calculated for this section | (40,00,000) |
Net profit (3) | 1,50,00,000 |
Therefore, (1)-Profits before deducting brought-forward losses and lowering deduction under section 33ABA are the profits taken into account in the preceding table to arrive at 20% of net profits under section 33ABA. In any event, the deduction shouldn't be greater than Rs. 2 crores * 20%= Rs. 40,00,000. Despite a deposit of Rs. 50,00,000 during the financial year, the permissible deduction will be up to Rs. 40,00,000.
Withdrawal on Closure of Account
As operations continue, the funds credited to the site restoration account or other special account may only be taken out for the purpose or purposes listed in the corresponding scheme. The amount that is withdrawn in a given year and is not used for the designated purpose in the same year prior will be considered the year's income. The entire amount taken out, less the amount owed to the government under the terms of the agreement, should be treated as income in the year of withdrawal and subject to taxation when the account is closed and money is taken out by the company.
Conclusion
Section 33ABA covers businesses engaged in the prospecting, extraction, and production of petroleum or natural gas. Since these activities are resource-intensive, provisions have been made to ensure that their impact is accounted for. By offering a deduction for the amount given, this section guarantees that firms budget for site restoration and encourages them to do so.
Frequently Asked Questions
For what purpose can the site restoration account funds be utilised?
The money can be used for either the deposit plan or the purposes specified in the scheme.
Can deduction be claimed on the entire deposit amount?
As long as the deduction doesn't exceed 20% of profits calculated in the correct way, it can be applied to the full deposit amount.
Can interest credited to the account be regarded as a deposit?
Yes, if interest is credited to the account, it can be regarded as a deposit and is taken into account for computing deductions.
What is the aim of Section 33ABA?
To ensure that businesses engaged in petroleum and gas production have enough funds for reviving the site at the conclusion of their business cycle, the provisions of Section 33ABA encourage setting aside money for site damage restoration. By doing this, the risks of leaving the site environmentally unfit would be avoided and a smooth restoration would be guaranteed.
Comments