It is clarified by the CBDT
that compensation received in respect of 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.
Income Tax Act 1961
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).
RFCTLARR Act
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.
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.
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