Section 194LA of the Income Tax Act, 1961, mandates Tax Deducted at Source (TDS) on payments made as compensation for the compulsory acquisition of immovable property (excluding agricultural land). Below is a detailed breakdown of its provisions:
1. Applicability of Section 194LA
✅ Covered Transactions:
- Compensation or enhanced compensationpaid for compulsory acquisition of:
- Land(non-agricultural).
- Buildingsor parts of buildings.
- Applies to payments by:
- Government authorities(e.g., for infrastructure projects).
- Private entitiesacquiring land under legal provisions.
❌ Exemptions:
- Agricultural land(rural or urban, as per Section 2(14)(iii)).
- Payments ≤ ₹2.5 lakh/year(₹5 lakh from April 2025).
- Tax-exempt awardsunder Section 96 of the Land Acquisition Act, 2013.
2. TDS Rate & Deduction Rules
| PARAMETER | DETAILS |
| Rate (PAN Provided) | 10% (no surcharge/cess). |
| Rate (PAN Not Provided) | 20% (under Section 206AA). |
| Threshold | ₹2.5 lakh/year (₹5 lakh from FY 2025-26). |
| Timing | Deduct at the earlier of: |
- Payment (cash/cheque/electronic).
- Credit to payee’s account. |
Example:
- Compensation: ₹6 lakh (PAN provided).
- TDS (10%): ₹60,000 → Net Payment: ₹5.4 lakh.
3. Key Compliance Requirements
- TDS Deposit: By the 7th of the next month(March: April 30) via Challan 281.
- TDS Return: File Form 26Q
- TDS Certificate: Issue Form 16Ato the payee within 15 days of filing.
4. Exemptions & Special Cases
- Agricultural Land: No TDS, even if acquired compulsorily.
- Enhanced Compensation:
- Principal amount: TDS under Section 194LA.
- Interest component: TDS under Section 194A(10%).
- Lower/Nil TDS Certificate: Obtain via Form 13if payee’s tax liability is lower.
5. Penalties for Non-Compliance
- Late Deduction: Interest @ 1% per month.
- Late Payment: Interest @ 5% per month.
- Non-Filing (Form 26Q): Penalty up to ₹1 lakh.
Key Points
🔹 10% TDS on compensation > ₹2.5 lakh (₹5 lakh from 2025).
🔹 PAN Mandatory to avoid 20% deduction.
🔹 Agricultural land exempt from TDS under this section.
🔹 Enhanced compensation splits tax treatment (principal vs. interest).
