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Income tax

03 April 2021

A resistancetial house in a small village, a portion has been destructed due to government ordinance for road wide word. Any money received towards reimbursement is taxable. please advise

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8 Replies

CA. Sourav Sarkar (Chartered Accountant ) (24588 Points)
Replied 04 April 2021

It should be treated as grant

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Kapadia Pravin (17264 Points)
Replied 04 April 2021

Not taxable. it's capital receipt. it's a compensation.

Nilesh Shringarpure (56 Points)
Replied 04 April 2021

Thanks

CA. Sourav Sarkar (Chartered Accountant ) (24588 Points)
Replied 04 April 2021

Your welcome

CA Rashmi Gandhi (Chartered Accountant) (86461 Points)
Replied 04 April 2021

Compensation received from govt is also taxable under Capital Gain.

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Kapadia Pravin (17264 Points)
Replied 04 April 2021

But I think here it's capital receipt and not taxable

CA Rashmi Gandhi (Chartered Accountant) (86461 Points)
Replied 04 April 2021

The Ministry of Finance vide Circular No. 36/2016 has cleared a cloud of doubt clarifying the issue if compensation received for compulsory acquisition of land is exempt under Income Tax Act as well as Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLAAR Act).

The RFCTLAAR Act is exempting all the acquisitions except the acquisition u/s 46 of the Act from levy of Income Tax.

The confusion started when the RFCTLARR Act came into effect on 1^st January, 2014. Section 96 of the Act says that income tax shall not be levied on any award or agreement made under this Act. Therefore, compensation received for compulsory acquisition of land under this Act is exempted from the levy of Income tax.

As no distinction, has been made between compensation received for compulsory acquisition of agricultural land and non-agricultural land in the matter of providing exemption from income-tax under the RFCTLARR Act, the exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961. This has created uncertainty in the matter of taxability of compensation received on compulsory acquisition of land, especially those relating to acquisition of non-agricultural land.

The matter was examined by the Board and it is hereby clarified that compensation received in respect of award or agreement which has been exempted from levy of income-tax vide Section 96 of the RFCTLARR Act shall also not be taxable under the provisions of Income-tax Act, 1961 even if there is no specific provision of exemption for such compensation in the Income-tax Act, 1961.