Clause 112 of the Finance Bill, 2026 proposes an amendment to Schedule XII of the Income-tax Act, 2025 to extend tax incentives to the prospecting and exploration of critical minerals. The amendment expands the list of minerals in Part A of Schedule XII, thereby making expenditure incurred on prospecting and exploration of such critical minerals eligible for deferred deduction under section 51 of the Act.
The amendment applies from 1 April 2026, i.e. tax year 2026-27 onwards.
Existing Legal Position under Section 51
Who Can Claim the Deduction
Section 51 applies only to:
- an Indian company, or
- a resident taxpayer (other than a company).
Non-residents and foreign companies are outside the scope of this provision.
Eligible Activities
The deduction is available for expenditure incurred wholly and exclusively on operations relating to:
- prospecting, or
- extraction, or
- production, or
- development of a mine or other natural deposit,
only in respect of minerals specified in Schedule XII.
Timing and Manner of Deduction
- Deduction is allowed on a deferred basis,
- spread over ten consecutive tax years,
- commencing from the tax year in which commercial production begins.
Eligible expenditure includes amounts incurred:
- in the year of commercial production, and
- in any one or more of the four tax years immediately preceding that year.
There is no upfront or immediate deduction before commercial production.
What Clause 112 Changes
Expansion of Part A of Schedule XII
Clause 112 proposes to amend Part A of Schedule XII to expand the list of minerals so as to include critical minerals. As a consequence:
- expenditure on prospecting and exploration of critical minerals
- becomes eligible for deduction under section 51,
- subject to the same conditions, timing, and amortisation rules that apply to other specified minerals.
The amendment does not modify section 51 itself, but only expands the mineral coverage through Schedule XII.
Key Implications of the Amendment
1. Tax Incentive for High-Risk Exploration Activity
Prospecting and exploration of critical minerals involve:
- long gestation periods, and
- high geological and commercial risk.
By extending section 51 benefits to critical minerals, the amendment:
- lowers the post-tax cost of exploration expenditure, and
- improves the risk-reward balance for resident taxpayers.
2. Deferred Deduction Structure Remains Intact
The amendment:
- does not accelerate deductibility,
- does not permit amortisation before commercial production, and
- does not alter the ten-year deduction period.
Tax relief continues to be linked to the commencement of commercial production.
3. Scope Strictly Limited to Scheduled Minerals
Only those critical minerals specifically notified in the amended Schedule XII will qualify.
The amendment does not create a general deduction for all minerals that may be regarded as “critical” under other policy frameworks unless they are included in Schedule XII.
4. No Change in Eligible Taxpayers
The benefit remains restricted to:
- Indian companies, and
- resident non-company taxpayers.
Foreign entities cannot claim deduction merely by participating in exploration activity.
Summary of the Amendment
Clause 112: At a Glance
| Particulars | Position after Amendment |
| Governing provision | Section 51 read with Schedule XII |
| Nature of benefit | Deferred deduction |
| Deduction period | 10 consecutive tax years |
| Eligible expenditure | Prospecting / exploration of critical minerals |
| Start of deduction | Year of commercial production |
| Eligible taxpayers | Indian companies and resident non-companies |
| Effective date | 1 April 2026 (AY 2026-27 onwards) |
What the Amendment Does and Does Not Do
What It Does
- ✔ Expands Schedule XII to include critical minerals
- ✔ Enables deferred deduction of prospecting and exploration expenditure
- ✔ Aligns tax incentives with strategic mineral development objectives
What It Does Not Do
- ❌ Does not allow immediate or upfront deduction
- ❌ Does not change amortisation mechanics under section 51
- ❌ Does not extend benefits to non-residents or foreign companies
Effective Date
✔ 1 April 2026
✔ Applicable from tax year 2026-27 onwards
Conclusion
Clause 112 of the Finance Bill, 2026 modestly but meaningfully strengthens India’s mining tax framework by extending section 51 deferred deduction benefits to critical minerals through an amendment to Schedule XII. The change preserves fiscal discipline by retaining the deferred-deduction model, while providing targeted support for capital-intensive and strategically important exploration activities.
The amendment is enabling rather than expansive, offering incentive without altering the core structure of mineral taxation.
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