Under section 194LA of the income tax act, any person liable for paying to a resident any sum; being in the nature of compensation or the consideration ;or the enhanced compensation 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 10% of such sum as income-tax thereon; provided the aggregate amount of such payments exceeds Rs. 2.50 lakhs during the financial year.
Section 194LA of Income Tax Act
TDS provision U/S 194LA shall apply only when the person make payment in cash, by cheque, etc.; and not in a case of exchange of land for Certificate of Development Rights (CDR/TDR).
There is no tax deduction under this section where a person make payment in respect of any award or agreement; which the section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 exempts from levy of income-tax.
Note: With effect from 1st April 2017, no deduction of tax shall be made on any payment which is exempt from levy of income-tax under Right to Fair Compensation Act, 2013.
For the purposes of this section, ‘agricultural land’ means agricultural land in India including land situate in any area referred to in section 2 (14) (iii) (a)/(b). ‘Immovable Property’ means any land (other than agricultural land) or any building or part of a building.
A land shall not be treated as Agricultural Land if it is situated,
Within jurisdiction of Municipality or Cantonment Board which has a population of 10000 or more
In any area within below given distance measured aerially
Population of the Municipality
Distance from Municipal Limit or Cantonment Board
10,000 – 1 lakh
Within 2 kms.
1 lakh – 10 lakhs
Within 6 kms.
More than 10 lakhs
Within 8 kms.
Important points to be remembered
This section does not apply, where the assessee-metro railways make payment to the competent authority; but will apply when competent authority disburses such amount to actual beneficiaries.
There is no jurisdiction to make the deduction from the compensation for agricultural land. In absence of the jurisdiction to deduct tax from compensation for agricultural land; the stand of the Income-tax Department that since there is the remedy of getting the assessment done and to receive the refund the writ petition was not maintainable, cannot be accepted.
Land acquisition officer shall deduct TDS from the amount of compensation and interest as per the provisions of section 194A or 194LA. In case of deduction by way of income tax; land acquisition officer shall issue tax deduction certificate directly to party or produce the same before the court; to be given to claimants as per the rules framed for income-tax.