Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Inserted by the Finance Act, 2018 (w.e.f. assessment year 2017-18). Fixes the year of taxability of three items: (1) interest received on compensation/enhanced compensation is deemed income of the year of receipt; (2) the claim for escalation of price in a contract or export incentive is deemed income of the year in which reasonable certainty of realisation is achieved; (3) subsidy/grant/cash incentive/duty drawback/waiver/concession/reimbursement (referred to in section 2(24)(xviii)) is deemed income of the year of receipt, if not charged earlier.
FA 2026: No amendment by the Finance Act, 2026.
A. SECTION COMMENTARY
Section 145B is a timing/charging rule that overrides section 145. It legislatively settles the year of taxability of certain receipts that had generated controversy under the accrual principle. Most significantly, sub-section (1) deems interest on compensation or enhanced compensation to be income of the year of receipt — displacing the earlier judge-made rule that such interest accrued and was taxable on a year-to-year (spread-over) basis. Sub-sections (2) and (3) similarly anchor the taxability of contractual price-escalation/export-incentive claims to the year of reasonable certainty of realisation, and of statutory subsidies/incentives to the year of receipt.
The provision must be read with section 56(2)(viii) (interest on compensation taxable under 'other sources') and section 57(iv) (standard 50% deduction on such interest). The pre-2018 jurisprudence on the character of compensation-related interest remains relevant to classification (whether a receipt is 'interest' at all, or part of compensation), even though the year of taxability is now governed by section 145B(1).
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025).
145B. (1) Notwithstanding anything to the contrary contained in section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received.
(2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved.
(3) The income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year.
C. AUTHORITIES
The relevant authorities concern the character of interest on compensation; the year of taxability is now governed by the statute.
1. Character and taxability of interest on compensation
CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC)
Court: Supreme Court of India.
Held: Interest under section 28 of the Land Acquisition Act, 1894 (on enhanced compensation) is in the nature of compensation itself and forms part of the compensation, whereas interest under section 34 is for delayed payment; the distinction governs the character of the receipt. The decision clarified the components of compensation and additional amounts on compulsory acquisition.
Significance: The leading authority on the character of compensation-related interest; bears on whether a receipt is taxable 'interest' (section 145B(1)/56(2)(viii)) or capital compensation. Year of taxability of taxable interest is now fixed by section 145B(1) (year of receipt).
Rama Bai v. CIT (1990) 181 ITR 400 (SC) — superseded on timing
Held: Interest on enhanced compensation accrues from year to year (from the date of dispossession/order to the date of payment) and is to be spread over and taxed on that accrual basis, not wholly in the year of receipt.
Status note: The 'spread-over/accrual' timing rule of Rama Bai has been legislatively superseded by section 145B(1) read with section 56(2)(viii), which now tax such interest in the year of receipt. Rama Bai is reproduced to explain the law that section 145B(1) changed; for periods governed by the section, the year of receipt controls.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; Finance Act, 2026 changes are flagged in the commentary. Citations are stated as reported; orders of the Tribunal, Authority for Advance Rulings and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.
CHAPTER XIV — PROCEDURE FOR ASSESSMENT
Section 145B — Taxability of Certain Income
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Inserted by the Finance Act, 2018 (w.e.f. assessment year 2017-18). Fixes the year of taxability of three items: (1) interest received on compensation/enhanced compensation is deemed income of the year of receipt; (2) the claim for escalation of price in a contract or export incentive is deemed income of the year in which reasonable certainty of realisation is achieved; (3) subsidy/grant/cash incentive/duty drawback/waiver/concession/reimbursement (referred to in section 2(24)(xviii)) is deemed income of the year of receipt, if not charged earlier.
FA 2026: No amendment by the Finance Act, 2026.
A. SECTION COMMENTARY
Section 145B is a timing/charging rule that overrides section 145. It legislatively settles the year of taxability of certain receipts that had generated controversy under the accrual principle. Most significantly, sub-section (1) deems interest on compensation or enhanced compensation to be income of the year of receipt — displacing the earlier judge-made rule that such interest accrued and was taxable on a year-to-year (spread-over) basis. Sub-sections (2) and (3) similarly anchor the taxability of contractual price-escalation/export-incentive claims to the year of reasonable certainty of realisation, and of statutory subsidies/incentives to the year of receipt.
The provision must be read with section 56(2)(viii) (interest on compensation taxable under 'other sources') and section 57(iv) (standard 50% deduction on such interest). The pre-2018 jurisprudence on the character of compensation-related interest remains relevant to classification (whether a receipt is 'interest' at all, or part of compensation), even though the year of taxability is now governed by section 145B(1).
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025).
145B. (1) Notwithstanding anything to the contrary contained in section 145, the interest received by an assessee on any compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the previous year in which it is received.
(2) Any claim for escalation of price in a contract or export incentives shall be deemed to be the income of the previous year in which reasonable certainty of its realisation is achieved.
(3) The income referred to in sub-clause (xviii) of clause (24) of section 2 shall be deemed to be the income of the previous year in which it is received, if not charged to income-tax in any earlier previous year.
C. AUTHORITIES
The relevant authorities concern the character of interest on compensation; the year of taxability is now governed by the statute.
1. Character and taxability of interest on compensation
CIT v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC)
Court: Supreme Court of India.
Held: Interest under section 28 of the Land Acquisition Act, 1894 (on enhanced compensation) is in the nature of compensation itself and forms part of the compensation, whereas interest under section 34 is for delayed payment; the distinction governs the character of the receipt. The decision clarified the components of compensation and additional amounts on compulsory acquisition.
Significance: The leading authority on the character of compensation-related interest; bears on whether a receipt is taxable 'interest' (section 145B(1)/56(2)(viii)) or capital compensation. Year of taxability of taxable interest is now fixed by section 145B(1) (year of receipt).
Rama Bai v. CIT (1990) 181 ITR 400 (SC) — superseded on timing
Held: Interest on enhanced compensation accrues from year to year (from the date of dispossession/order to the date of payment) and is to be spread over and taxed on that accrual basis, not wholly in the year of receipt.
Status note: The 'spread-over/accrual' timing rule of Rama Bai has been legislatively superseded by section 145B(1) read with section 56(2)(viii), which now tax such interest in the year of receipt. Rama Bai is reproduced to explain the law that section 145B(1) changed; for periods governed by the section, the year of receipt controls.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; Finance Act, 2026 changes are flagged in the commentary. Citations are stated as reported; orders of the Tribunal, Authority for Advance Rulings and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.