[Section-35E] : Amortisation of Expenditure on Prospecting etc., for Development of Certain Minerals

Section 35E provides for the amortisation of expenditure incurred wholly and exclusively on any operation relating to prospecting for the minerals or group of associated minerals 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.

  • Who can Claim Deduction –

Deduction under section 35E is allowed only in the case of Indian companies and resident assessees other than companies.

  • Qualifying Expenditure – When it should be incurred –

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

  • Qualifying Expenditure – What does it include –

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

  • Amount and Period of Deduction –

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

  1. 1/10 th. of “qualifying expenditure”; or

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

    whichever is less.

  • Audit Report –

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

  • Consequences in the case of Amalgamation or Demerger –

In the case of amalgamation/demerger of Indian companies, the above benefit for the unexpired period will be available to the transferee.

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