Circular No. 36/2016

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Circular No. DArbe/2016
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

ITA.II division, North Block,
New Delhi, the 25" 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 1% 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 vee 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)
Copy to:
1. PS to Finance Minister/PS to MoS(Revenue)
2. PPS to Revenue Secretary
3. Chairperson(CBDT) and all Members of CBDT
4. All Pr.CCsIT/Pr.DsGIT
5. Web-manager for uploading on Departmental website and placing the order in public domain
6. CIT(M &TP), CBDT with request to issue Press-Note in the matter
7. All Officers and Technical Sections of CBDT
8. ITCC Division of CBDT (3 copies)
9. Addl. CIT, Database Cell for uploading on IRS Officers website
10. ADG(PR,PP & OL) with request for placing on official handle of the department
11. Guard File ey (Rohit Garg)
Deputy Secretary to the Government of India