Section 194LA

Section 194LA — the law in short

What the courts have decided on section 194LA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Ghanshyam (HUF) Supreme CourtHelps department
  The court enhanced my acquisition compensation with interest. Which year is it taxed, and is the interest capital?
  Interest awarded under s.28 of the Land Acquisition Act, 1894 is part of the amount of compensation; interest under s.34 is not, because it is only compensation for delay in paying a sum already determined. The additional amount under s.23(1A) and the solatium under s.23(2) are likewise part of enhanced compensation, and the whole of it — including s.28 interest — is taxed under s.45(5) in the year of receipt, even where the claimant has withdrawn it against security while the Revenue's or the State's appeal is pending.
• Pune Municipal Corporation v ACIT (TDS), Pune High CourtHelps taxpayerNo later treatment found
  I have been held an assessee in default under s.201 for not deducting s.194C and s.194LA tax when I issued TDR certificates instead of paying money. Is there an answer where the payment is wholly in kind?
  The Bombay High Court found a strong prima facie case and stayed the s.201 order, the demand and the s.271C penalty notice. Its prima facie view is that the words 'or by any other mode' in s.194C and in s.194LA must be read ejusdem generis with payment in cash or by cheque or draft, so those sections do not operate where the payment is made in kind by issuing transferable development rights. The court drew support for that reading from s.194B and s.194R, which do contain express machinery for a benefit paid wholly in kind and which is conspicuously absent from s.194C and s.194LA.
• L. Venkataramana Raju v. Union of India (Karnataka High Court) — where compensation is payable under the RFCTLARR Act, 2013, section 96 of that Act exempts it from income-tax and from TDS even though the land is not agricultural and section 10(37) cannot apply High CourtHelps taxpayer
  My client's commercial property was compulsorily acquired for a metro project and tax was deducted at source on the compensation. Section 10(37) does not help because the land is not agricultural. Is there anything else?
  Yes — section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, which provides that no income tax or stamp duty shall be levied on any award or agreement made under that Act except one under its section 46. The Karnataka High Court held that where the acquisition was initiated after 1 January 2014 the compensation had to be paid under the 2013 Act, and that on a conjoint reading of section 96 of that Act, CBDT Circular No. 36/2016 dated 25 October 2016, the second proviso to section 194LA of the Income-tax Act and section 10(37), such compensation is exempt both from income-tax and from tax deduction at source. The writ petitions were allowed, the awards and endorsements quashed, and a refund of the TDS with interest directed.
• Ranjeet Singh v ITO, Ward-1(1), Bathinda ITATHelps taxpayer
  My land was taken under the National Highways Act, the award was announced in 2014 but the money reached me in 2015. The Assessing Officer says s.96 of the RFCTLARR Act does not apply. Is he right?
  The Tribunal held he was not, and deleted the addition. Where the award under s.3G of the National Highways Act, 1956 had been announced before 31 December 2014 but the compensation had not actually been paid by that date, the compensation falls to be paid in accordance with the First Schedule to the RFCTLARR Act, 2013, and is exempt under s.96 of that Act read with CBDT Circular No. 36/2016 dated 25 October 2016.
• Statutory position — s.194LA: TDS on compensation for compulsory acquisition of immovable property, and the RFCTLARR s.96 carve-out CBDT Circulars & InstructionsCuts both ways
  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.
• Statutory position — s.194-IA: the fifty lakh threshold, the multiple-transferor/transferee proviso from 1 October 2024, and the stamp duty value base from 1 April 2022 CBDT Circulars & InstructionsCuts both ways
  Four of us bought one flat and each of us paid under fifty lakh rupees. The TDS officer says we should have deducted under section 194-IA. Did we have to, and does the answer depend on when we bought?
  It depends entirely on the date. From 1 October 2024 sub-section (2) carries a proviso which says that where there is more than one transferor or transferee in respect of any immovable property, the consideration is the aggregate of the amounts paid or payable by all the transferees to the transferor or all the transferors — so a flat bought by four buyers for Rs 80 lakh is inside section 194-IA even though each buyer pays Rs 20 lakh. For a transfer before that date there is no such aggregation rule in the section, and the Tribunal has repeatedly read the obligation as arising qua each transferee.
• Statutory position — s.197: the Assessing Officer may certify a lower rate, or nil, for a listed section, but only on the payee's application and only for a period of the previous year — the 1961 Act position, for deductions up to 31 March 2026 CBDT Circulars & InstructionsCuts both ways
  My money is stuck. Every invoice I raise has tax deducted at the full rate, my actual tax for the year is far less than the deductions, and I only get it back a year later when the refund comes. Somebody told me to apply for a lower-deduction certificate under section 197. What does section 197 actually say — which payments does it cover, what does the Assessing Officer have to be satisfied about, what form do I file, and can the certificate be backdated to cover the deductions already made?
  Section 197(1) lets the payee apply to the Assessing Officer for a certificate that the payer may deduct at a lower rate, or not at all. It is not open-ended: it works only for the sections named in it, and the Assessing Officer must be satisfied that “the total income of the recipient justifies” the lower rate. The list is sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O, 194Q and 195 — 194LBA was added by Act No. 8 of 2023 with effect from 1 April 2023 and 194Q by Act No. 15 of 2024 with effect from 1 October 2024. Section 197(2) then binds the payer: once a certificate is given, he deducts at the certified rate, or nothing, until the Assessing Officer cancels it. Section 197(2A) is the rule-making power, and the rules made under it are rule 28 (application in Form No. 13, filed electronically), rule 28AA (how the rate is worked out and how long the certificate lasts) and rule 28AB (a no-deduction certificate for trusts and other section 139(4C) filers). Nothing in the section or the rules confers a power to backdate a certificate, and in substance it operates forward: rule 28AA(4) sends it to the named deductor, who cannot un-deduct months already past. From 1 April 2026 this machinery is gone — the Income-tax Act, 1961 was repealed by section 536 of the Income-tax Act, 2025 and the successor is section 395 of the 2025 Act, applied for in Form No. 128 under rule 213 of the Income-tax Rules, 2026, and from the same date section 395(6) lets that application go to a prescribed income-tax authority instead of the Assessing Officer.
• Statutory position — s.10(37): the four cumulative conditions for exempting capital gain on the compulsory acquisition of urban agricultural land CBDT Circulars & InstructionsCuts both waysNo later treatment found
  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)?
  Section 10(37) exempts capital gain on the transfer of agricultural land where four conditions are ALL satisfied. The assessee must be an individual or a Hindu undivided family. The land must be situated in an area referred to in item (a) or item (b) of s.2(14)(iii) — that is, it must be the urban agricultural land which IS a capital asset. The land must, during the period of TWO YEARS immediately preceding the date of transfer, have been used for agricultural purposes by that Hindu undivided family or individual, or by a parent of his. The transfer must be by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India. And the income must have arisen from compensation or consideration received on or after 1 April 2004. An Explanation provides that "compensation or consideration" includes compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.