CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194LA — Payment of Compensation on Acquisition of Certain Immovable Property (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live but substantially curtailed by the RFCTLARR exemption.
Finance Act, 2026: No amendment.
Mechanism: The payer of compensation/enhanced compensation on compulsory acquisition of immovable property (other than agricultural land) to a resident deducts tax at 10% above the threshold; no deduction where the compensation is exempt under section 96 of the RFCTLARR Act, 2013.
Litigation profile: Modest. The decisive question is the RFCTLARR (section 96) exemption, accepted by CBDT Circular 36/2016.
A. SECTION COMMENTARY
Section 194LA, inserted with effect from 1 October 2004, requires any person responsible for paying a resident any sum by way of compensation or enhanced compensation on the compulsory acquisition of any immovable property (other than agricultural land) to deduct tax at ten per cent at the time of payment, where the aggregate in a financial year exceeds the threshold. It is the operative deduction provision for land-acquisition compensation and is closely bound up with the substantive exemptions for such compensation.
The RFCTLARR exemption — the decisive carve-out
The most important feature is the third proviso (effective 1 April 2017): no deduction is to be made where the payment is in respect of an award or agreement that is exempt from income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR). Because compensation for most acquisitions to which the RFCTLARR Act applies is exempt from income-tax — a position the CBDT itself accepted in Circular No. 36 of 2016 — the practical reach of section 194LA has been substantially curtailed for acquisitions on or after 1 January 2014.
Agricultural land and the chargeability link
Agricultural land is excluded from section 194LA altogether (consistent with its exclusion from 'capital asset' in many cases). For non-agricultural immovable property outside the RFCTLARR exemption, the deduction follows the chargeability of the compensation as capital gains under section 45(5) (compulsory acquisition), and the interest on delayed/enhanced compensation is dealt with under section 194A/section 56 (see the section 194A commentary and Bikram Singh on the taxability of such interest).
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194LA. Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consi-deration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon:
Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed five lakh rupees:
Provided further that no deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013).
Explanation.—For the purposes of this section,—
(i) "agricultural land" means agricultural land in India including land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;
(ii) "immovable property" means any land (other than agricultural land) or any building or part of a building.
C. AUTHORITIES
The authorities are framed by the RFCTLARR exemption and the chargeability of compensation. The CBDT's own circular accepting the exemption is central. All citations are web-verified.
CBDT Circular No. 36 of 2016 — RFCTLARR compensation exempt
Principle: The CBDT accepted that compensation received for compulsory acquisition of land under the RFCTLARR Act, 2013 (other than acquisitions under section 46 of that Act) is exempt from income-tax under section 96 of that Act; consequently no TDS is to be deducted under section 194LA on such exempt compensation, a position now embodied in the third proviso (w.e.f. 1 April 2017).
Use: The decisive limit on section 194LA — exempt compensation bears no deduction.
Cluster 2 — Chargeability of compensation and interest (cognate)
Bikram Singh v. Land Acquisition Collector (1997) 224 ITR 551 (SC) — cognate
Principle: Interest on delayed land-acquisition compensation is a taxable revenue receipt; the deduction on the interest component, where it applies, is under section 194A, while section 194LA deals with the compensation/enhanced-compensation principal.
Use: Separates the compensation (section 194LA) from the interest (section 194A) streams and confirms the latter's taxability.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Governs the consequence of a failure to deduct under section 194LA.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 194LA — Payment of Compensation on Acquisition of Certain Immovable Property (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live but substantially curtailed by the RFCTLARR exemption.
Finance Act, 2026: No amendment.
Mechanism: The payer of compensation/enhanced compensation on compulsory acquisition of immovable property (other than agricultural land) to a resident deducts tax at 10% above the threshold; no deduction where the compensation is exempt under section 96 of the RFCTLARR Act, 2013.
Litigation profile: Modest. The decisive question is the RFCTLARR (section 96) exemption, accepted by CBDT Circular 36/2016.
A. SECTION COMMENTARY
Section 194LA, inserted with effect from 1 October 2004, requires any person responsible for paying a resident any sum by way of compensation or enhanced compensation on the compulsory acquisition of any immovable property (other than agricultural land) to deduct tax at ten per cent at the time of payment, where the aggregate in a financial year exceeds the threshold. It is the operative deduction provision for land-acquisition compensation and is closely bound up with the substantive exemptions for such compensation.
The RFCTLARR exemption — the decisive carve-out
The most important feature is the third proviso (effective 1 April 2017): no deduction is to be made where the payment is in respect of an award or agreement that is exempt from income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR). Because compensation for most acquisitions to which the RFCTLARR Act applies is exempt from income-tax — a position the CBDT itself accepted in Circular No. 36 of 2016 — the practical reach of section 194LA has been substantially curtailed for acquisitions on or after 1 January 2014.
Agricultural land and the chargeability link
Agricultural land is excluded from section 194LA altogether (consistent with its exclusion from 'capital asset' in many cases). For non-agricultural immovable property outside the RFCTLARR exemption, the deduction follows the chargeability of the compensation as capital gains under section 45(5) (compulsory acquisition), and the interest on delayed/enhanced compensation is dealt with under section 194A/section 56 (see the section 194A commentary and Bikram Singh on the taxability of such interest).
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
194LA. Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consi-deration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon:
Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed five lakh rupees:
Provided further that no deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013).
Explanation.—For the purposes of this section,—
(i) "agricultural land" means agricultural land in India including land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;
(ii) "immovable property" means any land (other than agricultural land) or any building or part of a building.
C. AUTHORITIES
The authorities are framed by the RFCTLARR exemption and the chargeability of compensation. The CBDT's own circular accepting the exemption is central. All citations are web-verified.
Cluster 1 — The RFCTLARR (section 96) exemption
CBDT Circular No. 36 of 2016 — RFCTLARR compensation exempt
Principle: The CBDT accepted that compensation received for compulsory acquisition of land under the RFCTLARR Act, 2013 (other than acquisitions under section 46 of that Act) is exempt from income-tax under section 96 of that Act; consequently no TDS is to be deducted under section 194LA on such exempt compensation, a position now embodied in the third proviso (w.e.f. 1 April 2017).
Use: The decisive limit on section 194LA — exempt compensation bears no deduction.
Cluster 2 — Chargeability of compensation and interest (cognate)
Bikram Singh v. Land Acquisition Collector (1997) 224 ITR 551 (SC) — cognate
Principle: Interest on delayed land-acquisition compensation is a taxable revenue receipt; the deduction on the interest component, where it applies, is under section 194A, while section 194LA deals with the compensation/enhanced-compensation principal.
Use: Separates the compensation (section 194LA) from the interest (section 194A) streams and confirms the latter's taxability.
Hindustan Coca-Cola Beverages (P) Ltd. v. CIT (2007) 293 ITR 226 (SC) — cognate on default
Principle: No second recovery from the deductor where the payee has paid the tax; section 201(1A) interest runs for the period of default.
Use: Governs the consequence of a failure to deduct under section 194LA.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.