Compulsory Acquisition Taxability

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77 Points Joined October 2019
If initial compensation received on Compulsory Acquisition to Legal heirs of the assessee, will it amount to Capital Gains in their hands?
In provision it is written that Enhanced compensation shall be taxable in their hands. what about Initial compensation?
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On 24 July 2024 at 09:02 Report
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Accounts Manager
2070 Points Joined March 2024

As per my opinion initial compensation and enhanced compensation both are taxable as capital gains in the hands of the legal heirs. Initial compensation is taxable in the year of receipt, while enhanced compensation, being additional, is also taxable in the year of receipt.

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On 24 July 2024 at 14:58
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Master in Accounts & high court Advocate
9434 Points Joined December 2011

In India, compensation received from the government is generally tax-exempt, but certain conditions apply: 1. _Compensation for damage or loss_: If the compensation is for damage or loss to property, business, or employment, it's usually tax-exempt. 2. _Compensation for injury or disability_: If the compensation is for personal injury or disability, it's tax-exempt. 3. _Ex gratia payment_: If the government makes an ex gratia payment (a payment made without any legal obligation), it's usually tax-exempt. However, there are exceptions: 1. _Interest on compensation_: Interest received on compensation is taxable. 2. _Compensation for business loss_: If the compensation is for business loss, it might be taxable as business income. 3. _Compensation for encroachment or land acquisition_: Compensation for land acquisition or encroachment might be taxable as capital gains. To determine taxability, consider: 1. _Nature of compensation_: Understand the reason for the compensation. 2. _Government notification_: Check if the government notification or order specifies tax exemption. 3. _Tax laws and court rulings_: Consult tax laws, court rulings, and expert advice to ensure accurate tax treatment. It's recommended to consult a chartered accountant or tax advisor to ensure compliance with specific tax laws and regulations.

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On 24 July 2024 at 15:00


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