Compensation on compulsory Acquisition under any law
- Normally capital gain is taxable in the year of transfer but in case of compulsory acquisition of capital asset capital gain will be taxable in the year in which compensation is received.
- If compensation received as inertial compensation then it will be taxable in the year in which is first instalment is received.
- In case of enhanced compensation , it will be taxable when it is received.
- If any interest received on enhanced compensation is taxable under the head income from other source (IFOS) in the year of receipt. And 50% deduction will be allowed u/s 57.
- Nature of capital gain of enhanced compensation will be same as that of initial compensation.
- Any capital gain arising to an Individual or HUF on compulsory acquisition of urban agriculture land shall be exempt from tax provided such land has been used for agriculture purposes during the preceding 2 years by the Individual or his parents or by such HUF.
Computation of capital gain for Compulsory acquisition
For Initial Compensation
| Fair value of Consideration (Initial Compensation) | xxxx |
| Less: Cost Of Acquisition | (xxx) |
| Less: Cost Of Improvement | (xxx) |
| LTCG/STCG | XXXX |
For Enhanced Compensation
| Fair value of Consideration (Enhanced Compensation) | xxxx |
| Less: Litigation Expenses | (xxx) |
| LTCG/STCG | xxxx |
