Lok Sabha Question No. 4343 (UNSTARRED), answered on 2016-08-11
Subject: Land Acquisition
Ministry: RURAL DEVELOPMENT
Asked by: VINOD KUMAR BOIANAPALLI

## GOVERNMENT OF INDIA MINISTRY OF RURAL DEVELOPMENT DEPARTMENT OF LAND RESOURCES

## LOK SABHA UNSTARRED QUESTION No. 4343 TO BE ANSWERED ON 11.08.2016

## Land Acquisition

## 4343. SHRI B. VINOD KUMAR:

Will the Minister of RURAL DEVELOPMENT be pleased to state:

- (a) whether it is a fact that Income Tax Department has given instructions for tax deduction from payments to be made to land losers due to irrigation and other development projects which involve land acquisition and if so, the details thereof;
- (b) whether it  is  not  against  the  provisions  of  section  96  of  the  RFCTLARR  Act,  2013  which states that compensation awards are IT exempt and violates the rights of land losers ensured under the Act and if so, the details thereof; and
- (c) the  steps  proposed  by  the  Government  for  solving  the  clash  between  section  96  of RFCTLARR  Act,  2013  and  section  194LA  of  the  IT  Act,  1961  so  that  the  exemption  is granted from Tax Deducted at Source (TDS) for land acquisition compensation awards?

## ANSWER

## MINISTER OF STATE FOR RURAL DEVELOPMENT (SHRI RAM KRIPAL YADAV)

(a):     Section  194LA  of  the  Income  Tax  Act,  1961  requires  that  tax  be  deducted  at  source  from payments  in  the  nature  of  compensation  on  account  of  compulsory  acquisition  of  any  immovable property (other than agricultural land). TDS under section 194LA is, thus, a requirement under the law and it does not flow from any instruction of Central Board of Direct Taxes (CBDT).

(b):   Certain anomalies between the provision of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act, 2013 and the Income Tax Act,  1961  have  recently  been  brought  to  the  notice  of  CBDT.  Section  96  of  the  RFCTLARR  Act provides that no income tax shall be levied on any award or agreement made under this Act. It has also been pointed out that since no similar exemption provision exists under the Income Tax Act, the Income  Tax  Department  is  taxing  the  Capital  Gain  arising  from  compensation  received  against acquisition  of  land.  A  request  has,  therefore,  been  made  to  remove  the  said  anomaly  between  the RFCTLARR Act and Income Tax Act by making a suitable enabling provision under Income Tax Act.

Under the Income Tax Act, 1961, compensation received against acquisition of 'agricultural land' by the Government (Central/ State) is exempt from tax under the head 'Capital Gains' except when such land is situated -

- (a) inside the jurisdiction of a municipality/ municipal corporation/ notified area committee/ town are committee etc. or a cantonment board having population of more than 10000; or
- (b) in any area (measured aerially) which is -
- i. within 2 km from the local limits of any municipality/ cantonment board which has a population between 10000 to 1 lakh;
- ii. within 6 km from the local limits of any municipality/ cantonment board which has a population between 1 lakh to 10 lakh;
- iii. within 8 km from the local limits of any municipality/ cantonment board which has a population more than 10 lakh.

However,  as  per  section  10(37)  of  the  Income  Tax  Act,  1961,  compensation/  consideration received  against  compulsory  acquisition  of  any  agricultural  land  situated  within  the  area  specified above,  which  is  used  for  agricultural  purpose,  shall  also  be  exempt  from  Income  tax.  Thus, effectively, compensation received from compulsory acquisition of agricultural land remains exempt from tax under the provisions of the Income Tax Act, 1961. However, similar benefit is not available in case of acquisition of properties other than agricultural land.

On  the  other  hand,  section  96  of  the  RFCTLARR  Act,  2013,  inter-alia,  provides  that  no income tax shall be levied on any award or agreement made under that Act. The RFCTLARR Act, however, covers not only the agricultural land but also lands/ properties falling in other categories and  therefore  making  its  scope  much  wider.  Thus,  there  is  an  anomaly  between  the  two  Acts regarding the taxability of income (arising from compensation received in lieu of acquisition of land) to the extent the land under consideration falls in non-agricultural category. In other words, if the land under transfer is agricultural, the income remains exempt under the Income Tax Act and the two Acts remain synchronized. Only in respect of land other than the agricultural land for the purposes of the Income Tax Act, the  anomaly creeps in since the Capital  Gain  arising  therefrom  becomes  taxable under the Income Tax Act, while the same is stipulated to be exempt under the RFCTLARR Act.

(c):       The matter is under consideration to resolve the above anomaly.

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