No TDS under Section 194LA on Land Acquisition Compensation Except Under Section 46

By | September 1, 2026
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No TDS under Section 194LA on Land Acquisition Compensation Except Under Section 46
Issue
Whether compensation received for the compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act, 2013, is exempt from income tax and TDS under Section 194LA, and whether executing courts can mandate Section 197 exemption certificates.
Facts
  • Petitioners were decree holders in Land Acquisition Original Petitions and filed Execution Applications to transfer awarded compensation amounts to their bank accounts.
  • The Special Deputy Collector opposed the applications, invoking Section 194LA of the Income-tax Act, 1961, and argued that only compensation for agricultural land is exempt from Tax Deducted at Source (TDS).
  • The executing court partly allowed the applications but granted the petitioners liberty to approach the Income Tax Department to claim an exemption certificate under Section 197.
Decision
  • Compensation received for the compulsory acquisition of land under the RFCTLARR Act, 2013, is generally exempt from the levy of income tax.
  • The exemption applies by reading Section 96 of the RFCTLARR Act, 2013, together with the proviso to Section 194LA of the Income-tax Act, 1961 (or Section 393 of the Income-tax Act, 2025).
  • The only exception to this exemption is for acquisitions made specifically under Section 46 of the RFCTLARR Act, 2013.
  • The executing court’s orders requiring the petitioners to seek Section 197 exemption certificates were set aside.
  • The matter was remanded to the Executing Court to reconsider the issue afresh in light of the statutory exemptions.
Key Takeaways
  • Broad Exemption for RFCTLARR Acquisitions: Compensation awarded for compulsory land acquisition under the RFCTLARR Act, 2013, is exempt from income tax, regardless of whether the land is agricultural or non-agricultural.
  • No TDS Requirement: Due to the explicit exemption under the proviso to Section 194LA and Section 96 of the RFCTLARR Act, authorities cannot deduct TDS on such compensation amounts.
  • Section 46 Exception: The only scenario where this exemption does not apply is when the acquisition is executed under Section 46 of the RFCTLARR Act.
  • Section 197 Certificates Unnecessary: Assessees are not required to obtain a nil/lower deduction certificate under Section 197 for compensation that is already statutorily exempt from tax.
HIGH COURT OF ANDHRA PRADESH
Chalamala Narasa Reddy
v.
Special Deputy Collector LAO Somasila Project (LAO)*
TARLADA RAJASEKHAR RAO, J.
CIVIL REVISION PETITION NOS. 446 TO 449 of 2026
AUGUST  7, 2026
D. Kodandarami Reddy, Counsel for the Petitioner.
ORDER
1. As the issue involved in all these cases is identical, they are disposed of by way of this common order.
2. The petitioners, who are decree holders in Land Acquisition Original Petitions, filed Execution Applications in Execution Petitions under Rules 231 to 235 of the Civil Rules of Practice, to transfer amount through CFMS online system to the petitioners’ accounts. The said applications were opposed by the Special Deputy Collector-cum-Land Acquisition Officer, Somasila Project, Unit-IV, Rajampet, stating that applications were filed for issuing cheques in respect of compensation awarded for structures. Therefore, income tax has to be deducted as per the provisions of the Income Tax Act. Section 194LA of the Income Tax Act, provides that on the compensation awarded for acquiring agricultural land, income tax, at the source, shall not be deducted and the same is confirmed by the Hon’ble Apex Court in UOI v. Hari Singh  (SC)/(2018) 15 SCC 201 and the structures standing on agricultural lands remain taxable. Therefore, prayed to dismiss the applications.
3. The Executing Court vide order dated 29.12.2025, by following the judgments of the Kerala High Court in Nalini v. Deputy Collector, Land Acquisition [2007] 294 ITR 423 (Kerala)/2006 (4) KARLJ 87 and Hon’ble Apex Court in Hari Singh (supra), allowed the applications partly, granting liberty to the petitioners to claim exemption before competent authority under Section 197 of the Income Tax Act before the Income Tax authority. Aggrieved by the same, present Civil Revision Petitions are filed.
4. Learned counsel for the petitioners has relied on Circular No.36 of 2016 dated 25.10.2016. According to the Circular, no tax can be levied on any land acquired under Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (30 of 2013), (for short hereinafter refer as ‘RFCTLARR Act’), where such payment is made in respect of an award or agreement exempted from the levy of income tax.
5. In this context, it is relevant to extract Section 96 of the RFCTLARR Act, which reads as under:-
“96. Exemption from income-tax, stamp duty and fees.-No income tax or stamp duty shall be levied on any award or agreement made under this Act, except under Section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same.”
6. Section 194 LA of Income Tax reads as under:
Section 194 LA. Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration 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 two lakh and fifty thousand 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. (emphasis added)
7. The RFCTLARR Act came into effect from 1st January, 2014. Section 96, inter-alia, provides that income-tax shall not be levied on any Award or agreement made (except those made under Section 46) under the RFCTLARR Act and the Proviso to Section 194LA also says the same thing, which is extracted above. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under Section 46 of RFCTLARR Act), is exempted levy of the income tax.
8. Therefore, impugned orders dated 29.12.2025 passed in Execution Applications in Execution Petitions in Land Acquisition Original Petitions, on the file of learned Principal Civil Judge (Senior Division), Rajampet, are hereby set aside and remanded back to the Executing Court to consider the issue afresh, pursuant to the observations made by this Court, in accordance with law, and the learned Executing Court is further directed to expedite the hearing.
9. With the above directions, these Civil Revision Petitions are disposed of. There shall be no order as to costs.
10. As a sequel thereto, Interlocutory Applications pending, if any, shall stand closed.