Demolishing of part of building on road widening

16 July 2019
Whether repairs and renovation work carried out on partly demolishing building is deductible from the compensation of building under capital gains.


Click to Talk 17 July 2019
Yes, it's a compensation for demolition of building expenses deductible. No capital gains tax payable on such compulsory acquisitions.

Haripriya Vemulapally (Querist)
17 July 2019
But as per section 45(5) such compulsary Aquisition is taxable under capital gains


Click to Talk 18 July 2019
The Ministry of Finance vide Circular No. 36/2016 has cleared a cloud of doubt clarifying the issue if compensation received for compulsory acquisition of land is exempt under Income Tax Act as well as Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLAAR Act).

The RFCTLAAR Act is exempting all the acquisitions except the acquisition u/s 46 of the Act from levy of Income Tax.

The ITA, 1961 is exempting only the agricultural land not situtated in the specified area.

Since the RFCTLAAR Act was brought into force in 2014 while the provisions of Income Tax Act was introduced in 2004, the necessary amendments were not made by giving effect of the intention of the legislation with respect to provisions of RFCTLAAR Act

Haripriya Vemulapally (Querist)
18 July 2019
it mentions compensation for land, But we have recieved compensation for damage caused to the building


Click to Talk 19 July 2019
Capital gains arises on sale of building or land. Here compensation received for damages caused to the building no capital gain arises. You can spend the amount for repairing the building or construction of new one. The compensation is for that purpose not taxable.


Click to Talk 19 July 2019
Such compensation not taxable.
See the link.

Haripriya Vemulapally (Querist)
20 July 2019
Thank you for the Solution


Click to Talk 21 July 2019

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