No Income Tax On RFCTLARR Land Acquisition Compensation: Andhra Pradesh High Court

The Andhra Pradesh High Court on 7 August held that compensation paid for compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act) is exempt from income tax, except in cases covered by Section 46 of the Act.

A Single Bench comprising Justice Tarlada Rajasekhar Rao set aside the executing court's orders permitting deduction of tax from compensation awarded to landowners and remanded the matters for fresh consideration. He held:

“The RFCTLARR Act came into effect from 1st January, 2014. Section 96, inter-alia, provides that income-tax shall not be levied on any Award or agreement made (except those made under Section 46) under the RFCTLARR Act and the Proviso to Section 194LA also says the same thing, which is extracted above. Therefore, compensation received for compulsory acquisition of land under the RFCTLARR Act (except those made under Section 46 of RFCTLARR Act), is exempted levy of the income tax.”

The petitioners, who were decree holders in Land Acquisition Original Petitions, had approached the executing court seeking transfer of the awarded compensation through the CFMS online system. The Special Deputy Collector-cum-Land Acquisition Officer, Somasila Project, opposed the applications, contending that income tax was required to be deducted from compensation relating to structures acquired along with agricultural land.

The executing court partly allowed the applications by an order dated 29 December 2025, while permitting the petitioners to seek exemption from the competent Income Tax authority under Section 197 of the Income Tax Act.

The High Court, however, relied on Section 96 of the RFCTLARR Act, which expressly provides that no income tax shall be levied on any award or agreement made under the Act, except those covered by Section 46. It also examined Section 194LA of the Income Tax Act, which provides that tax deduction at source is not required where the payment relates to an award or agreement exempt from income tax under Section 96 of the RFCTLARR Act.

The Bench noted that the RFCTLARR Act came into force on 1 January 2014 and that Section 96 provides a statutory exemption from income tax for awards or agreements made under the Act, subject to the exception under Section 46.

Accordingly, the High Court set aside the executing court's orders dated 29 December 2025 and remanded the matters for fresh consideration in light of its observations and in accordance with law. It also directed the executing court to expedite the proceedings. It disposed of the petitions with no order as to costs.

For Petitioner: D Kodandarami Reddy