Section 35E- Amortization of Expenditure on Prospecting etc., for Development of Certain Minerals

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The Income Tax Act, of 1961 is the main statute of Income Tax in India. It provides for levy, administration, collection, and recovery of Income Tax.

According to this Section,

As per this Section, the amortization of expenditure incurred wholly and exclusively on any operation related to the prospecting for the minerals and the groups associated with it or on the development of a mine or other natural deposit of any such minerals or group of associated minerals specified in the Seventh Schedule.

Under Section 35E, the deduction is only allowed to Indian companies and Indian residents.

When should the Qualifying Expenditure be incurred?

The qualifying expenditure should be incurred during the “year of commercial production” and four years immediately preceding that year.

What is all included in Qualifying Expenditure?

Expenditure that is incurred wholly and exclusively on any operations related to prospecting for any mineral or related groups specified in the Seventh Schedule or on the development of a mine or other natural deposit of any such mineral or related group, is “qualifying expenditure”. However, a few expenses (like expenses met by any other person, expenditure on acquisition of the site, capital expenses on acquiring building, plant, machinery, and furniture) are excluded.

What is the amount and period of deduction?

The amortization of qualifying expenditure is allowed in equal installments over a period of 10 years. The amount deductible for each year is—

1/10th of “qualifying expenditure”; or

Income (before section 35E deduction) of the previous year arising from commercial exploitation of any mine or deposit of minerals of any other nature,

Other than a company or co-operative society, if the assessee is a person, then books of account of the relevant year(s) in which the expenditure is incurred should be audited.