Budget 2026 proposed to amend Schedule III of the Income Tax Act to give tax exemption towards the income earned from the transfer of property through compulsory acquisition of land.
Nidhi | Feb 2, 2026 |
Budget 2026 Proposes to Amend Income Tax Act to Provide Exemption on Income from Compulsory Acquisition of Land
The Budget 2026 proposes to amend the Income Tax Act to offer tax exemption on the income earned from the compulsory acquisition of any land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act). It aims to align the provisions of income tax law with the RFCTLARR Act.
Under the compulsory acquisition of land, the government acquires private land for public purposes. This process is governed under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. To acquire the land, the government must pay fair compensation to the owner of the private land. This is taxable as income under the head “Capital Gains“.
However, the current Section 11, read with Schedule III of the Income Tax Act, provides tax exemption to the individual or the Hindu Undivided Family (HUF) towards the capital gain earned from the transfer of agricultural land, subject to some conditions.
Apart from this, Section 96 of the RFCTLARR Act, 2013 also says that no income tax applies to the compensation awards or agreements made under this Act (except section 46 cases).
Since there was ambiguity, the CBDT in its Circular No. No.36/2016, made it clear that the income earned in respect of the award or agreement, which is tax-free under the RFCTLARR Act, must also not be taxed under the Income Tax Act, 1961, even if the income tax law does not specifically mention any provisions for such compensation.
To better align the provision of income tax law with the RFCTLARR Act, Budget 2026 proposed to amend Schedule III of the Income Tax Act to give tax exemption towards the income earned from the transfer of property through compulsory acquisition of any land carried out on or after April 1, 2026, under the RFCTLARR Act. (except for Section 46 cases). These changes are applicable from April 1, 2026, for the tax year 2026-27 and the subsequent years.
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