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
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.