Capital Gain Tax on Compulsory Acquisition

Capital Gain Tax on Compulsory Acquisition


Our client had a plot of land (non-agricultural) situated near a busy junction (Sreekaryam) in Thiruvananthapuram. Kerala State Government decided to construct an overbridge at the junction mentioned above to reduce traffic congestion. The government was compulsorily acquired the abovementioned plot of land for this purpose, and our client was awarded a package sum under a scheme framed for this purpose by the Government. The Income Tax department has served a notice on the client demanding to pay capital gains tax that arose on this transaction.

Solution/ Methodology

Like most compulsory acquisitions, the acquisition as mentioned above was covered under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act). Under Section 96 of the said Act, income tax exemption has been provided on the gains arising as a result of an award for compulsory acquisition. The CBDT has also clarified that eligible assessees may claim exemption under the abovementioned provision.


The entire capital gains that arose as a result of the compensation award received by our client was exempted, and the client paid no Income Tax for this transaction.

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