Section 194LA of the Income-tax Act requires a 10% tax deduction at source (TDS) on payments made to residents as compensation or enhanced compensation for the compulsory acquisition of immovable property (excluding agricultural land), provided the payment exceeds ₹2,50,000 in a financial year. The Finance Bill, 2025, proposes to amend this provision by raising the TDS threshold from ₹2,50,000 to ₹5,00,000. This change is set to take effect on April 1, 2025. The amendment aims to reduce compliance for smaller compensation payments while maintaining TDS requirements for higher-value transactions. Clause 62 of the bill outlines this adjustment, updating the financial limit to align with current compensation practices.
Budget 2025: Section 194LA – Payment of compensation on acquisition of certain immovable property.
Section 194LA of the Act requires that any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, deduct an amount equal to ten per cent of such sum as income-tax thereon, provided that such amount exceeds Rs. 2,50,000/- in a financial year.
2. It is proposed to increase the threshold amount for requirement of deduction of tax at source under section from Rs. 2,50,000/- to Rs. 5,00,000/-.
3. This amendment will take effect from the 1st day of April 2025.
[Clause 62]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 62 of the Bill seeks to amend section 194LA of the Income-tax Act relating to payment of compensation on acquisition of certain immovable property.
The said section, inter alia, provides that any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property, shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon.
The first proviso to the said section provides that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed two lakh and fifty thousand rupees.
It is proposed to amend the first proviso to the said section so as to provide that no tax is required to be deducted at source under this section if the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed five lakh rupees.
This amendment will take effect from 1st April, 2025.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
62. Amendment of section 194LA.
In section 194LA of the Income-tax Act, in the first proviso, for the words “two lakh and fifty thousand rupees”, the words “five lakh rupees” shall be substituted.
