Presumptive Scheme for Exploration Business

Introduction

A non-resident engaged in business of exploration of mineral oil can be assessed on presumptive basis. In this scheme, the income is computed on presumptive basis at the rate of 10% of sum received by non-resident entity on account of providing services or facilities in connection with prospecting for or extraction or production of mineral oils or supply of plant and machinery for the said purposes.

1. About the Scheme

1.1. What is presumptive taxation scheme under Section 61(2) [Table S. No. 5]?

Income-tax Act allows non-resident person to calculate and pay tax on presumptive basis. This scheme has been introduced to reduce the burden of compliances on such entities. Thus, if an entity opts for presumptive tax scheme, it can pay tax on presumption basis without maintaining the books of accounts.

1.2. Who can opt for the presumptive tax scheme under Section 61(2) [Table S. No. 5]?

A non-resident person or a foreign company engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire, used or to be used in the prospecting for, or extraction or production of, mineral oils can opt for this presumptive scheme.

1.2-1. Meaning of ‘Plant’

For this provision, ‘plant’ includes ships, aircrafts, vehicles, drilling units, scientific apparatus and equipment for the purpose of the said business.

1.2-2. Meaning of ‘Mineral Oil’

For this provision, ‘mineral oil’ includes petroleum and natural gas.

1.3. When is presumptive scheme under Section 61(2) [Table S. No. 5] not available?

The presumptive tax scheme shall not be available in respect of the following incomes:

(a) Income from business of prospecting or extraction or production of mineral oils as referred to in Section 54.

(b) Income by way of royalty or fees for technical services as derived from the permanent establishment in India as referred to in Section 59.

(c) Income by way of dividend, interest, royalty and fees for technical services as referred to in Section 207.

(d) In circumstances as referred to in Section 527.

1.4. How much is presumptive income under Section 61(2) [Table S. No. 5]?

The taxable income from eligible business shall be 10% of aggregate of following amounts:

(a) The amount paid or payable on account of providing services or facilities in connection with prospecting for or extraction or production of mineral oils in India or supply of plant and machinery on hire used or to be used for the said purposes. The amount may be paid or payable in India or outside India. It may be paid or payable directly to the assessee or to any other person on his behalf.

(b) The amount received or deemed to be received in India on account of providing services or facilities in connection with prospecting for or extraction or production of mineral oils outside India or supply of plant and machinery on hire used or to be used for the said purposes outside India. The amount may be received by the assessee or by any other person on his behalf.

1.5. Can assessee declare income lower than presumptive income under Section 61(2) [Table S. No. 5]?

The assessee can declare that his income is lower than the presumptive income. However, in that situation, he will have to maintain the books of account as per Section 62 and get it audited under Section63.

1.6. No loss, allowance or deduction allowable from presumptive income under Section 61(2) [Table S. No. 5]

Where a non-resident assessee declares profits and gains of business for any tax year in accordance with this presumptive tax scheme, any loss, allowance or deduction allowable under the 2025 Act shall not be allowed against the income computed in the manner specified in section 61(2) [Table S. No. 5]. This means that if the assessee had business losses in the past (whether on account of depreciation or otherwise), those losses cannot be adjusted against the presumptive income of the subsequent year.

Example, A non-resident assessee did not opt for the presumptive tax scheme under this provision and declares a business loss of Rs. 10,00,000 in the tax year 2026-27. In tax year 2028-29, the assessee chooses to opt for the presumptive tax scheme and declares presumptive income of Rs. 15,00,000. Since the assessee did not opt for the presumptive taxation scheme in TY 2026-27, he cannot adjust the loss of Rs. 10,00,000 against the presumptive income of Rs. 15,00,000 in the subsequent tax year, i.e., TY 2028-29.

However, it is important to note that the current year’s business losses or losses under other heads (brought forward or current year) can be set off and carry forward. Additionally, if the business loss of the earlier tax year cannot be set off in the year in which the presumptive scheme has been opted, the assessee can carry forward such losses to set off in the subsequent year in which the presumptive scheme is not opted. However, the number of years for which such business loss can be carried forward shall be reduced by the number of years in which the presumptive scheme has been opted.

1.7. Section 61(2) [Table S. No. 5] provision overrides Sections 26 to 54

Section 61(2) [Table S. No. 4] overrides the provisions of sections 26 to 54. Thus, income of a non-resident person, from business of exploration of mineral oil, shall be computed on presumptive basis and all other additions or deductions allowable under Section 26 to 54 shall be deemed to have been allowed.

All other provisions, i.e., provisions for calculation of capital gains, etc. will continue to be applicable in the case of a non-resident deriving profits from this business.

1.8. Availability of chapter VIII deductions from presumptive income under Section 44BB

This section overrides the provisions contained in section 26 to section 54 only, thus assessee opting for presumptive taxation scheme under this section can claim deduction under Chapter-VIII.

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.