Budget 2017, proposed to
amend the section 194LA to provide that no deduction shall be made under this
section where such payment is made in respect of any award or agreement which
has been exempted from levy of income-tax under section 96 (except those made
under section 46) of RFCTLARR Act.
Section 194LA, provides
that any person paying compensation shall deduct tax at source at the rate of
ten per cent. on the compensation or enhanced compensation or consideration on
account of compulsory acquisition of any immovable property (other than
agricultural land) under any law for the time being in force subject to certain
conditions specified therein.
Right to Fair Compensation
and Transparency in Land Acquisition, Rehabilitation and Resettlement Act,
2013, ('RFCTLARR Act') came into force on 1st January, 2014.
Section 96 of the RFCTLARR
Act, provides that income-tax shall not be levied on award or agreement made
subject to limitations mentioned in section 46 of the said Act. Therefore,
compensation received for compulsory acquisition of land under the RFCTLARR Act
(except those made under section 46 of RFTCLARR Act), is exempted from the levy
of income-tax.
The CBDT has issued
Circular number 36/2016 dated 25th October, 2016 clarifying that compensation
received in respect of any award or agreement which has been exempted from the
levy of income-tax vide section 96 of the RFCTLARR Act shall not be taxable
under the provisions of the Act, even if there is no specific provision of
exemption for such compensation under the Act.
However, the circular
addressed only the matter pertaining to taxability of compensation received on
compulsory acquisition of and not tax deduction at source under section 194LA
of the Act.
This amendment will
applicable from 1st April 2017.