U/s 194la
This query is : Resolved
10 May 2017
One of my client has received compensation of Rs 30 lakh in compulsory acquirent of agriculture land and tds deducted Rs. 3 lakh u/s 194LA. Is thers any tax liabilty. If not then where we have to show it in Income Tax Return and how to claim refund.
10 May 2017
Is agriculture land is urban or rural.
As compensation for rural is exempted while for urban capital gain is generated.
10 May 2017
It is urban. But i think urban and rural both are exempt as per RFCTLARR Act 2013.
10 May 2017
It is Urban. But i think both rural and urban are exempt as per RFCTLAAR Act,2013
11 May 2017
Rural agricultural land is specifically excluded from the definition of Capital Asset in the Income Tax Act 1961.
Earlier Capital Gain from sale or compulsory acquisition of Urban agricultural land is to be treated as per section 10(37) of the Income Tax Act, 1961. However after 2014 the RFCTLAAR Act,2013 which is wider in scope than Income Tax Act, 1961 has exempted the capital gain from compulsory acquisition of land whether it is urban land or rural land. Thanks!
Earlier Capital Gain from sale or compulsory acquisition of Urban agricultural land is to be treated as per section 10(37) of the Income Tax Act, 1961. However after 2014 the RFCTLAAR Act,2013 which is wider in scope than Income Tax Act, 1961 has exempted the capital gain from compulsory acquisition of land whether it is urban land or rural land. Thanks!
13 May 2017
Thank u so much CA Mohit! But where and how to show this comensation income in ITR and how can we claim TDS deducted on comensation u/s 194LA
02 August 2025
Great question! Here’s a clear step-by-step on how to handle the compensation received under **Section 194LA** and the TDS deducted, given the context of compulsory acquisition under the **RFCTLARR Act, 2013**:
---
### 1. **Is there any tax liability on compensation under RFCTLARR Act?**
* The **Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act, 2013** provides exemption on capital gains arising from compulsory acquisition of land, whether urban or rural.
* So, **compensation received under compulsory acquisition is exempt from capital gains tax**, regardless of urban or rural classification.
* However, **TDS under Section 194LA is still deducted by the authority at 10%** (1% before FY 2019-20 if consideration Rs. 2 crore).
* The exemption in capital gains doesn’t automatically refund the TDS deducted.
---
### 2. **Where and how to show the compensation income in Income Tax Return (ITR)?**
* Since the compensation is exempt, you **do NOT show it as taxable income** in the “Income from Capital Gains” or any other heads.
* However, **you should disclose the exempt income** under the **‘Exempt Income’ section** of the ITR form.
* In ITR-2 or ITR-3, there is a separate schedule/tab for exempt income (such as agricultural income, capital gains exempt under section 10, etc.).
* You can mention this compensation amount as exempt under the relevant clause (usually section 10(37) or mention as exempt under RFCTLARR Act).
---
### 3. **How to claim refund of TDS deducted under Section 194LA?**
* Since TDS was deducted, it will appear as **tax paid** in Form 26AS.
* File your income tax return correctly, showing:
* **No taxable income from the compensation (as it is exempt)**
* **Claim the TDS credit** in the tax payment section.
* Because no tax is payable on this compensation, but TDS is deducted, you are eligible for a **refund of the TDS amount**.
* The Income Tax Department will process the refund after your return is processed.
* **Make sure to file the return timely and correctly to claim the refund.**
---
### Summary:
| Step | What to do |
| --------------------------- | --------------------------------------------------- |
| Compensation received | Exempt under RFCTLARR Act (both urban & rural land) |
| Income reporting in ITR | Report as exempt income under 'Exempt Income' |
| TDS deducted under 194LA | Show TDS credit in return (from Form 26AS) |
| Tax payable on compensation | NIL |
| Refund of TDS | Eligible, file return to claim refund |
---
### Additional Tips:
* Keep documentation like compensation letter, TDS certificate (Form 16B), and bank statements handy.
* If you file ITR online, verify using Aadhaar or EVC for smooth processing.
* In case of difficulty, you can file **Form 26AS mismatch rectification** or approach your jurisdictional AO.
---
If you want, I can help you draft the specific entries for the ITR or the refund claim process. Would you like that?
---
### 1. **Is there any tax liability on compensation under RFCTLARR Act?**
* The **Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act, 2013** provides exemption on capital gains arising from compulsory acquisition of land, whether urban or rural.
* So, **compensation received under compulsory acquisition is exempt from capital gains tax**, regardless of urban or rural classification.
* However, **TDS under Section 194LA is still deducted by the authority at 10%** (1% before FY 2019-20 if consideration Rs. 2 crore).
* The exemption in capital gains doesn’t automatically refund the TDS deducted.
---
### 2. **Where and how to show the compensation income in Income Tax Return (ITR)?**
* Since the compensation is exempt, you **do NOT show it as taxable income** in the “Income from Capital Gains” or any other heads.
* However, **you should disclose the exempt income** under the **‘Exempt Income’ section** of the ITR form.
* In ITR-2 or ITR-3, there is a separate schedule/tab for exempt income (such as agricultural income, capital gains exempt under section 10, etc.).
* You can mention this compensation amount as exempt under the relevant clause (usually section 10(37) or mention as exempt under RFCTLARR Act).
---
### 3. **How to claim refund of TDS deducted under Section 194LA?**
* Since TDS was deducted, it will appear as **tax paid** in Form 26AS.
* File your income tax return correctly, showing:
* **No taxable income from the compensation (as it is exempt)**
* **Claim the TDS credit** in the tax payment section.
* Because no tax is payable on this compensation, but TDS is deducted, you are eligible for a **refund of the TDS amount**.
* The Income Tax Department will process the refund after your return is processed.
* **Make sure to file the return timely and correctly to claim the refund.**
---
### Summary:
| Step | What to do |
| --------------------------- | --------------------------------------------------- |
| Compensation received | Exempt under RFCTLARR Act (both urban & rural land) |
| Income reporting in ITR | Report as exempt income under 'Exempt Income' |
| TDS deducted under 194LA | Show TDS credit in return (from Form 26AS) |
| Tax payable on compensation | NIL |
| Refund of TDS | Eligible, file return to claim refund |
---
### Additional Tips:
* Keep documentation like compensation letter, TDS certificate (Form 16B), and bank statements handy.
* If you file ITR online, verify using Aadhaar or EVC for smooth processing.
* In case of difficulty, you can file **Form 26AS mismatch rectification** or approach your jurisdictional AO.
---
If you want, I can help you draft the specific entries for the ITR or the refund claim process. Would you like that?
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