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July 2024

Taxation of Interest on Compensation

By Pradip Kapasi | Gautam Nayak | Bhadresh Doshi, Chartered Accountants
Reading Time 30 mins

ISSUE FOR CONSIDERATION

The Constitution of India has vested the Government of India with the power to acquire properties for public purposes, provided an adequate compensation is paid to the owner for deprivation of the property. Such a power was largely exercised by the government under the Land Acquisition Act, 1894 (“LAA”), which Act has been substituted by the Right to Fair Compensation and Transparency in Land Acquisition and Rehabilitation and Resettlement Act, 2013 (“RFCTLARRA”) w.e.f 1st January, 2014. In addition, various specifically legislated enactments permit the government to acquire properties, e.g., The National Highways Act and The Metro Railways Act.

On acquisition of properties, the government is required to adequately compensate the owner with payment of the assured amount under the award. This amount is determined as per certain guidelines provided in the respective acts and in the rules. At times, the awards are challenged on several grounds, including on the ground of inadequacy of the compensation. The government usually pays compensation as per the award within a reasonable period and the enhanced compensation is paid on settlement of the dispute.

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