Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
ITA.II division, North Block, New Delhi,

Circular No. 36/2016
Dated: 25th of October, 2016

Subject: Taxability of the compensation received by the land owners for the land acquired under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLAAR Act’)-reg.-

Under the existing provisions of the Income-tax Act, 1961 (The Act’), an agricultural land which is not situated in specified urban area, is not regarded as a capital asset. Hence, capital gains arising from the transfer (including compulsory acquisition) of such agricultural land is not taxable. Finance (No. 2) Act, 2004 inserted section 10(37) in the Act from 01.04.2005 to provide specific exemption to the capital gains arising to an Individual or a HUF from compulsory acquisition of an agricultural land situated in specified urban limit, subject to fulfilment of certain conditions. Therefore, compensation received from compulsory acquisition of an agricultural land is not taxable under the Act (subject to fulfilment of certain conditions for specified urban land).

2. The RFCTLARR Act which came into effect from 1st January, 2014, in section 96, inter alia provides that income-tax shall not be levied on any award or agreement made (except those made under section 46) under the RFCTLARR Act. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under section 46 of RFCTLARR Act), is exempted from the levy of income-tax.

3. 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 has been 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.

4. The above may be brought to the notice of all concerned.

5. Hindi version of the order shall follow.

(Rohit Garg)

Deputy Secretary to the Government of India

(F.No. 225/88/2016-ITA.II)

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4 responses to “Tax on land owners compensation under RFCTLARR Act 2013”

  1. Sreejith U says:

    sir
    my land is acquired by government under RFCTLARR Act, 2013, which is exempted as per above circular.

    while filing return of income, can i claim above exemption under 10(37) section or any other section???

  2. SUNILPARUL says:

    Please tell me, that our land & building (non agriculture land) is acquired by SPECIAL LAND ACQUISITION OFFICE NANITAL in FY 2015-2016, We have received compensation of Rs. 50 Lacs, This is taxable or exempt under Income Tax Act.

  3. GOURAV SHARMA says:

    Whether Interest to be included in the compensation or reward amount

    • PARSHVA SHAH says:

      Yes, in my opinion.
      the interest is paid as per RFCTLARR ACT, 2013…the same act guides in section 96 that ANY AWARD OR AGREEMENT is exempt …. ( except the ones in section 46 ).

      so entire payment is done in RFCTLARR ACT and thus entirely exempt

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