The land acquisition officer has deducted ten per cent from my compensation cheque. When is s.194LA actually attracted, what is the threshold now, and does the RFCTLARR exemption stop the deduction?
Section 194LA obliges any person paying a resident compensation, enhanced compensation, consideration or enhanced consideration on account of compulsory acquisition of immovable property, under any law for the time being in force, to deduct ten per cent at the time of payment. Three things cut it down: the section does not touch agricultural land at all, because 'immovable property' is defined to exclude it; the first proviso stops deduction where the payment or the aggregate of payments to that resident in the financial year does not exceed five lakh rupees, that figure having replaced 'two lakh and fifty thousand' by Act No. 7 of 2025 with effect from 1 April 2025; and the second proviso stops deduction altogether where the payment is made in respect of any award or agreement exempted from levy of income-tax under s.96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Section 194LA of the Income-tax Act, 1961, as amended up to 2026. It bears on section 194LA, section 2(14)(iii), section 194-IA, section 194A, section 56(2)(viii), section 57(iv) of the Income Tax Act 1961, in TDS Defaults, Capital Gains Exemptions and Capital Gains matters.
This is the provision that reaches a farmer or a small landowner who has never filed a TDS return in his life, and the two carve-outs are the ones most often missed on both sides of the counter. The agricultural-land exclusion is not a proviso and not an exemption to be claimed — it is built into the definition of 'immovable property' in the Explanation, so on agricultural land there is no deduction duty in the first place, and 'agricultural land' is itself defined by reference to items (a) and (b) of s.2(14)(iii), which means land inside the specified municipal limits and distances is NOT agricultural land for this purpose. The s.96 carve-out in the second proviso is narrower than practitioners assume: it operates only where the award or agreement 'has been exempted from levy of income-tax under section 96' of the 2013 Act, so the fight is always about whether the particular acquisition was made under, or attracts, the 2013 Act — which is exactly the ground on which the National Highways Act cases are litigated. Note the dates carefully: the second proviso was inserted by Act No. 7 of 2017 with effect from 1 April 2017, so an award paid before that date does not have the statutory carve-out at all and must be argued on s.96 and CBDT Circular No. 36/2016 directly. And the threshold has moved three times — one hundred thousand rupees on the departmental pages stamped up to Year 2011, two lakh and fifty thousand rupees on the pages from Year 2018 to Year 2024, and five lakh rupees from 1 April 2025.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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The charge: 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, 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. Two provisos follow, in this order as printed. First proviso: no deduction 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 five lakh rupees. Second proviso: no deduction where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013). The Explanation defines, for the purposes of the section, (i) 'agricultural land' as agricultural land in India including land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2, and (ii) 'immovable property' as any land (other than agricultural land) or any building or part of a building.
As the section stands from 1 April 2025: the rate is ten per cent of the sum paid; the deduction point is payment, not credit; agricultural land is outside the section altogether by force of the definition of 'immovable property'; the threshold below which no deduction is made is five lakh rupees of payments to a resident in the financial year; and there is no deduction at all where the payment is made in respect of an award or agreement exempted from levy of income-tax under s.96 of the RFCTLARR Act, 2013. Before 1 April 2025 the threshold was two lakh and fifty thousand rupees, and before the pages stamped Year 2018 it was one hundred thousand rupees. The s.96 proviso exists only from 1 April 2017.
Not applicable — this is a statement of the statutory text as printed on the departmental section pages, with the amendment history taken from the footnote apparatus on the same pages and from the year stamps. No judicial reasoning is involved.
Provided further 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 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013).
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Handle my notice → Ask a CA on WhatsAppSection 194LA obliges any person paying a resident compensation, enhanced compensation, consideration or enhanced consideration on account of compulsory acquisition of immovable property, under any law for the time being in force, to deduct ten per cent at the time of payment. Three things cut it down: the section does not touch agricultural land at all, because 'immovable property' is defined to exclude it; the first proviso stops deduction where the payment or the aggregate of payments to that resident in the financial year does not exceed five lakh rupees, that figure having replaced 'two lakh and fifty thousand' by Act No. 7 of 2025 with effect from 1 April 2025; and the second proviso stops deduction altogether where the payment is made in respect of any award or agreement exempted from levy of income-tax under s.96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 194LA, section 2(14)(iii), section 194-IA, section 194A, section 56(2)(viii), section 57(iv) of the Income Tax Act 1961. It is reported as Section 194LA of the Income-tax Act, 1961, as amended up to 2026. This is the provision that reaches a farmer or a small landowner who has never filed a TDS return in his life, and the two carve-outs are the ones most often missed on both sides of the counter. The agricultural-land exclusion is not a proviso and not an exemption to be claimed — it is built into the definition of 'immovable property' in the Explanation, so on agricultural land there is no deduction duty in the first place, and 'agricultural land' is itself defined by reference to items (a) and (b) of s.2(14)(iii), which means land inside the specified municipal limits and distances is NOT agricultural land for this purpose. The s.96 carve-out in the second proviso is narrower than practitioners assume: it operates only where the award or agreement 'has been exempted from levy of income-tax under section 96' of the 2013 Act, so the fight is always about whether the particular acquisition was made under, or attracts, the 2013 Act — which is exactly the ground on which the National Highways Act cases are litigated. Note the dates carefully: the second proviso was inserted by Act No. 7 of 2017 with effect from 1 April 2017, so an award paid before that date does not have the statutory carve-out at all and must be argued on s.96 and CBDT Circular No. 36/2016 directly. And the threshold has moved three times — one hundred thousand rupees on the departmental pages stamped up to Year 2011, two lakh and fifty thousand rupees on the pages from Year 2018 to Year 2024, and five lakh rupees from 1 April 2025. If it applies to you, the first step is this: Establish first whether the land is agricultural land as defined in the Explanation — agricultural land in India including land in the areas referred to in items (a) and (b) of s.2(14)(iii). If it is, s.194LA imposes no duty at all, and a deduction already made is recoverable by filing a return and claiming the refund.
The charge: 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, 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. Two provisos follow, in this order as printed. First proviso: no deduction 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 five lakh rupees. Second proviso: no deduction where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013). The Explanation defines, for the purposes of the section, (i) 'agricultural land' as agricultural land in India including land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2, and (ii) 'immovable property' as any land (other than agricultural land) or any building or part of a building. The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. As the section stands from 1 April 2025: the rate is ten per cent of the sum paid; the deduction point is payment, not credit; agricultural land is outside the section altogether by force of the definition of 'immovable property'; the threshold below which no deduction is made is five lakh rupees of payments to a resident in the financial year; and there is no deduction at all where the payment is made in respect of an award or agreement exempted from levy of income-tax under s.96 of the RFCTLARR Act, 2013. Before 1 April 2025 the threshold was two lakh and fifty thousand rupees, and before the pages stamped Year 2018 it was one hundred thousand rupees. The s.96 proviso exists only from 1 April 2017.
Not applicable — this is a statement of the statutory text as printed on the departmental section pages, with the amendment history taken from the footnote apparatus on the same pages and from the year stamps. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "Provided further 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 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013)."
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Section 194LA of the Income-tax Act, 1961, as amended up to 2026. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 194LA, section 2(14)(iii), section 194-IA, section 194A, section 56(2)(viii), section 57(iv), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. As the section stands from 1 April 2025: the rate is ten per cent of the sum paid; the deduction point is payment, not credit; agricultural land is outside the section altogether by force of the definition of 'immovable property'; the threshold below which no deduction is made is five lakh rupees of payments to a resident in the financial year; and there is no deduction at all where the payment is made in respect of an award or agreement exempted from levy of income-tax under s.96 of the RFCTLARR Act, 2013. Before 1 April 2025 the threshold was two lakh and fifty thousand rupees, and before the pages stamped Year 2018 it was one hundred thousand rupees. The s.96 proviso exists only from 1 April 2017. It arises in TDS Defaults, Capital Gains Exemptions and Capital Gains matters, on section 194LA, section 2(14)(iii), section 194-IA, section 194A, section 56(2)(viii), section 57(iv) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For a non-agricultural acquisition, check the payment date against the threshold in force for that financial year: one hundred thousand rupees for the older years, two lakh and fifty thousand rupees for payments up to 31 March 2025, five lakh rupees from 1 April 2025. Aggregate all payments to the same resident in the financial year before concluding the threshold is not crossed — the proviso speaks of 'the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year'. Where the acquisition is governed by the 2013 Act, put the second proviso to the deductor in writing before payment. It is a bar on deduction, not a refund mechanism, and it works only if the award or agreement is one exempted from levy of income-tax under s.96. For an award paid before 1 April 2017 there is no second proviso to rely on; the argument has to be run on s.96 of the 2013 Act read with CBDT Circular No. 36/2016 (F.No.225/88/2016-ITA.II) dated 25 October 2016, and, if tax has been deducted, through a return and refund claim rather than by resisting the deduction. Remember that s.194LA and s.194-IA are mutually exclusive: s.194-IA(3) disapplies the one per cent transfer levy where s.194LA applies, so do not let a buyer deduct twice on the same acquisition. Where interest is paid on top of the compensation, do not assume it follows the compensation — s.194LA is worded for compensation and consideration only, and interest is dealt with separately under s.194A and, since assessment year 2010-11, under s.56(2)(viii) read with s.57(iv).
Still good law. Two consolidations of the section, of 2025 and 2026 vintage, print it identically, which is the strongest evidence available here that no later amendment has displaced it. That is not a substitute for reading the current Finance Act: no Finance Act text has been read, and the Act numbers in the footnotes have not been matched to Finance Act names from an independent source, save that Act No. 7 of 2017 is identified as the Finance Act, 2017 because two consolidations describe the same footnote both ways. One proposition in circulation is superseded. Anything stating a two lakh fifty thousand rupee threshold is wrong for a payment made on or after 1 April 2025; the figure is five lakh rupees, substituted by Act No. 7 of 2025 with effect from that date. Three limits on the section that go to every use of it and do not depend on later authority. It does not touch agricultural land at all, because 'immovable property' is defined for this section to exclude it. The first proviso stops deduction where the payment or the aggregate of payments to that resident in the financial year does not exceed the threshold. And the second proviso stops deduction altogether where the payment is made in respect of any award or agreement exempted from levy of income-tax under s.96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 - which, on a compulsory acquisition under that Act, is the argument to lead with. For a payment governed by the Income-tax Act 2025 the successor of s.194LA should be identified; that correspondence has not been established here. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
ON THE TEXT AND ITS CORROBORATION. The section is taken from two consolidations that print it word for word alike, of 2026 and 2025 vintage, both headed 'Income-tax Act, 1961' and 'Payment of compensation on acquisition of certain immovable property'. The threshold footnote appears in both, in the same words: 'Sub. for "two lakh and fifty thousand" by Act No. 7 of 2025, w.e.f. 1-4-2025.' ON THE SECOND PROVISO, which is the one that matters most. Its date comes from two further consolidations, of 2018 and 2019 vintage, whose footnotes read 'Ins. by the Act No. 7 of 2017, w.e.f. 1-4-2017' and 'Inserted by the Finance Act, 2017, w.e.f. 1-4-2017' respectively - the two together identifying Act No. 7 of 2017 as the Finance Act, 2017. The one lakh rupee threshold comes from consolidations of 2011 and 2009 vintage, both of which also carry the footnote 'Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-10-2004' for the section itself. WHAT COULD NOT BE ESTABLISHED. No consolidation read carries a footnote dating the change from one hundred thousand rupees to two lakh and fifty thousand rupees, so that intermediate step is stated from the vintages alone - one lakh in 2011, two lakh fifty thousand in 2018 - and not from an amending Act. ON CBDT CIRCULAR NO. 36/2016. Its text has not been read. Its number, its file number F.No. 225/88/2016-ITA.II and its date, 25 October 2016, are taken from the grounds of appeal and the reasoning reproduced in the Amritsar Bench's order in Ranjeet Singh v. ITO (ITA Nos. 91 and 135/Asr/2023). Its operative text has not been read and nothing on this page states what it says. If the circular matters to your argument, obtain it. ON THE NEIGHBOURING SECTIONS, which decide which provision a payment falls under. Agricultural land is outside s.194LA altogether, because 'immovable property' is defined for this section by reference to s.2(14)(iii) and excludes it; a purchase of other immovable property by agreement is on s.194-IA and not here; and interest on enhanced compensation is a separate question, running through s.194A on the deduction side and ss.56(2)(viii) and 57(iv) on the charge. None of those is stated on this page. ON THE DATE FIELD. 'decided_on' carries a commencement date and not a decision date: 1 April 2025, the date on which Act No. 7 of 2025 substituted 'five lakh' for 'two lakh and fifty thousand', that being the most recent amendment to this section established here. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
As the section stands from 1 April 2025: the rate is ten per cent of the sum paid; the deduction point is payment, not credit; agricultural land is outside the section altogether by force of the definition of 'immovable property'; the threshold below which no deduction is made is five lakh rupees of payments to a resident in the financial year; and there is no deduction at all where the payment is made in respect of an award or agreement exempted from levy of income-tax under s.96 of the RFCTLARR Act, 2013. Before 1 April 2025 the threshold was two lakh and fifty thousand rupees, and before the pages stamped Year 2018 it was one hundred thousand rupees. The s.96 proviso exists only from 1 April 2017.
TaxSphere, “Statutory position — s.194LA: TDS on compensation for compulsory acquisition of immovable property, and the RFCTLARR s.96 carve-out”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-194la-tds-on-compulsory-acquisition-compensation-and-the-section-96-rfctlarr-carve-out/ (validity last checked 2026-09-08)
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For a year after 2010, is the interest I received under s.28 of the Land Acquisition Act still capital gains following Ghanshyam, or has s.56(2)(viii) changed that?
My client received interest on enhanced compensation for compulsorily acquired land. Ghanshyam says it is part of compensation. Does that still hold?
My client's agricultural land inside the municipal limits has been compulsorily acquired. Section 2(14)(iii) does not help because the land is urban. What exactly must he prove under section 10(37)?
The Tribunal split my client's land acquisition interest into 9 per cent as capital gains and 15 per cent as income from other sources. Is that right?
