Interest and compensation received on cancellation of property agreement- taxation

Hi All,

How will interest and compensation received on cancellation of property agreement be taxed? The agreement for purchase of property was entered into in 2017 and it is now cancelled paying rs 10 lakh as interest and compensation extra.

Will it be taxed under capital gains or income from other sources?

If under capital gains (sale of right to a property), then will section 54EC be availed (capital gain bonds) ?

If the cancellation agreement was worded differently would the taxation be different?



 

Replies (1)
In my opinion it should be taxed under Other Sources. As the sale of neither property nor rights materialised the receipt is purely in the nature of 'compensation for cancellation' and not 'compensation for sale'.

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