TDS on Compensation for Compulsory Acquisition of Immovable Property
Tax deduction at source may apply when compensation, enhanced compensation, consideration or enhanced consideration is paid to a resident for compulsory acquisition of specified immovable property. From 1 April 2026, the current rule is contained in Section 393(1), Table Serial No. 3(iii) of the Income-tax Act, 2025.
What payments are covered?
The current provision covers any sum in the nature of compensation or enhanced compensation, or consideration or enhanced consideration, paid on account of compulsory acquisition of qualifying immovable property under any law in force.
Current TDS rate and threshold
The rate under Section 393(1), Table Serial No. 3(iii) is 10 percent. The threshold specified in the table is Rs. 5,00,000. The payer should aggregate payments in accordance with the statutory rule applicable to the transaction and tax year.
Agricultural land is excluded
The compulsory-acquisition TDS item expressly excludes agricultural land. Whether a particular parcel qualifies as agricultural land must be determined under the applicable statutory definition and facts of the property.
Meaning of immovable property
For the legacy Section 194LA rule, immovable property meant land other than agricultural land, or any building or part of a building. The current Section 393 table similarly identifies compulsory acquisition of immovable property other than agricultural land as the relevant TDS category.
When is TDS deducted?
Legacy Section 194LA required deduction at the time of payment. For a current compulsory-acquisition payment, the payer should apply Section 393 and the current rules to determine the statutory deduction and reporting point.
RFCTLARR Act exemption
Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 provides an income-tax exemption for awards and agreements covered by that provision, subject to its statutory exception. The current Income-tax Act framework also needs to be read with the applicable exemption provisions for compulsory acquisition under the RFCTLARR Act.
Accordingly, a payer should not deduct merely because a payment is labelled compensation. The acquisition law, nature of property, identity of recipient, date of acquisition, award or agreement, and applicable exemption must first be examined.
Transition from Section 194LA to Section 393
| Payment period | Applicable law | Provision |
|---|---|---|
| Payment governed on or before 31 March 2026 | Income-tax Act, 1961 | Section 194LA, subject to exemptions and conditions |
| Payment governed on or after 1 April 2026 | Income-tax Act, 2025 | Section 393(1), Table Serial No. 3(iii) |
Legacy Section 194L
Legacy Section 194LA of the Income-tax Act, 1961
Section 194LA required a person responsible for paying a resident compensation, enhanced compensation, consideration or enhanced consideration on compulsory acquisition of immovable property other than agricultural land to deduct income-tax at 10 percent at the time of payment.
The uploaded historical text records a threshold of Rs. 2,50,000 during the financial year. It also records a specific non-deduction rule where the payment related to an award or agreement exempt from income-tax under Section 96 of the RFCTLARR Act, 2013. The current Section 393 threshold is Rs. 5,00,000 and should be used for transactions governed by the 2025 Act.
Legacy definition of agricultural land
For Section 194LA, agricultural land meant agricultural land in India, including land situated in the areas referred to in the relevant limbs of the capital-asset definition under Section 2(14) of the 1961 Act.
Legacy definition of immovable property
For Section 194LA, immovable property meant any land other than agricultural land, or any building or part of a building.
Practical compliance checklist
Confirm compulsory acquisition: identify the law and award or agreement under which the property is acquired.
Confirm residence: the resident-payee compulsory-acquisition TDS item should not automatically be applied to a non-resident recipient.
Classify the property: determine whether it is agricultural land or another immovable property covered by Section 393.
Check the exemption: examine Section 96 of the RFCTLARR Act and the applicable Income-tax Act exemption provisions before deduction.
Apply the current threshold: Section 393(1), Table Serial No. 3(iii) specifies Rs. 5,00,000.
Apply the current rate: the statutory TDS rate under the current table item is 10 percent, subject to other applicable provisions.
Use the correct section reference: for current reporting, quote Section 393(1), Table Serial No. 3(iii), not legacy Section 194LA.
Related Income Tax provisions
TDS on transfer of immovable property: legacy Section 194-IA
TDS on payment under specified agreement: legacy Section 194-IC
Rent TDS: legacy Section 194-I
Commission, brokerage and property TDS
For an actual acquisition, verify the acquisition statute, award or agreement, property classification, recipient status and exemption applicable for the relevant tax year.