TDS on payment of compensation on compulsory acquisition of Immovable property – Section 194LA

Any person responsible of paying compensation or enhanced compensation or consideration or enhanced consideration on compulsory acquisition of immovable property other than agricultural land is required to deduct tax at the rate of 10% at the time of payment to a resident. No surcharge, education cess or SHEC shall be added to the rate of TDS. This means it should be deducted at the base rate of 10%.

For the purpose of TDS U/s194LA, Immovable property means any land other than agricultural land ( including urban agricultural land) or any  building or part of a building.

Higher and lower rate of TDS

The rate of TDS will be taken as 20% in all cases if PAN has not been given by the deductee to the deductor.

If the deductee wants the deductor not to deduct tax on payment of compensation on compulsory acquisition or to deduct at a lower rate then he can make an application in form number 13 to his Assessing Officer for issuing a certificate, authorizing the deductor not to deduct tax or to deduct TDS amount at a lower rate.

After receiving such certificate, the deductor should deduct tax accordingly. This means if the certificate is not to deduct tax, then you should not deduct TDS amount out of the compensation on compulsory acquisition of immovable property other than agricultural land.

While applying in form 13, the applicant is required to mention his permanent account number or PAN. If it’s not mentioned, no certificate can be issued by the Assessing Officer.

When tax not to be deducted or No TDS Under Section 194LA

TDS amount not to be deducted when aggregate amount of payment during the financial year does not exceed Rs. 2,50,000.

This means tax has to be deducted on compulsory acquisition of Immovable property other than agricultural land only when the compensation amount exceeds Rs. 2, 50,000.

It has to be deducted only at the time of payment even though acquisition has been done much before.

Tax should not be deducted if 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.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.