Compensation received

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 July 2012 compensation received against booking of flat whether taxable? n if taxable then which head? and the amount liable for tax?

CA Amit Jaiswal

CA Amit Jaiswal (Expert)
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17 July 2012 If you are getting some compensation, it is for extinguishment of rights.

In this case, capital gain is applicable as it is a transfer.

Querist : Anonymous

Querist : Anonymous (Querist)

18 July 2012 so what should be taken as the purchase cost???

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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19 July 2024 Compensation received against booking of a flat is generally taxable under the Income Tax Act in India. Here are the key points to consider regarding the taxability:

1. **Nature of Income**: The compensation received would typically be treated as "Income from Other Sources" under the Income Tax Act, 1961, unless it is specifically exempted.

2. **Taxability**: The compensation amount received will be added to your total income for the relevant financial year and taxed at applicable income tax rates.

3. **Purchase Cost**: The purchase cost for tax purposes is generally considered as the amount you paid towards booking the flat. This includes any initial payments made towards the flat's cost, such as booking amount, advance payments, etc.

4. **Tax Calculation**: To determine the taxable amount, you would deduct the purchase cost (as mentioned above) from the compensation received. The resulting amount would be added to your income for the year and taxed as per your income tax slab.

5. **Calculation Example**:
- Suppose you received a compensation of Rs. 5,00,000 against booking a flat.
- The purchase cost (amount paid towards booking the flat) is Rs. 4,00,000.
- Taxable compensation = Rs. 5,00,000 - Rs. 4,00,000 = Rs. 1,00,000.
- This Rs. 1,00,000 will be added to your total income for the year and taxed accordingly.

6. **Tax Deduction at Source (TDS)**: If the compensation amount exceeds Rs. 50 lakhs, TDS may be applicable at the rate of 10% under Section 194-IC of the Income Tax Act.

7. **Consultation**: It's advisable to consult with a tax professional or chartered accountant to determine the exact tax implications based on your specific situation and to ensure compliance with tax laws.

In summary, while the compensation received against booking a flat is taxable under the head "Income from Other Sources", the purchase cost should be deducted from the compensation amount to arrive at the taxable income. Always maintain proper documentation and seek professional advice if needed to correctly report such income in your tax returns.