Exemption from Income Tax and Stamp Duty: Section 96

Compensation that the tax system claws back is compensation mis-stated, and the 2013 Act closes the leak at the source: under Section 96, no income tax or stamp duty is levied on any award or agreement made under the Act (Section 46 excepted), and no fee is charged for the copies the claimant needs. This note covers the exemption, its one carve-out, the tax administration's acceptance of it, and the practice points it settles.

1. The Exemption

• Income tax and stamp duty: no income tax or stamp duty shall be levied on any award or agreement made under this Act, the compensation, solatium and the Act's additions reach the family whole, and the instruments of the acquisition, awards, agreements, the allotments the Schedules provide, attract no stamp duty, which the Second Schedule reinforces by putting the registration charges of allotted land and houses on the Requiring Body.
• The carve-out: the exemption does not extend to awards or agreements made under Section 46, the private-purchase R&R regime: there the underlying transaction is a market purchase by a private acquirer, and the Act declines to subsidise it with the public-acquisition exemption.
• No fees for copies: no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same, a small clause with a real function: the award is the family's title to its entitlements, and the Act prices access to it at zero.

2. The Tax Administration's Acceptance

The exemption's practical reach was settled early. Under the income-tax law as it stood, compensation for agricultural land had its own exemptions, while compensation for other land was taxable as capital gains, and the question arose whether Section 96 changed that for RFCTLARR acquisitions. The CBDT, by Circular No. 36 of 2016, accepted the plain reading: compensation received for compulsory acquisition under the RFCTLARR Act is exempt from income tax under Section 96, even where the land is not agricultural, and the exemption applies though the Income-tax Act itself was not amended to say so. The position gives the 2013 Act's awards a cleaner tax character than their predecessors under the 1894 Act, and it travels with the compensation standard: where Fourth Schedule enactments pay RFCTLARR-level compensation under the 2015 alignment order, the tax treatment of those payments has been a recurring practice question, generally answered by looking to whether the payment is made under the 2013 Act's regime, the point to verify in current circulars when advising on a highway or railway award.

3. Practice Points

• No TDS where exempt: payments exempt under Section 96 are not subject to tax deduction at source on the settled administrative position; deductions made in error are recoverable through the refund machinery, a recurring small-litigation stream the circular exists to prevent.
• Interest components: the award's statutory components, solatium and the additional amounts, share the award's exemption as parts of the compensation; delay interest under Section 80 has its own line of tax treatment questions, and the conservative practice is to examine its character on current law before assuming either way.
• Stamp duty on resettlement allotments: between Section 96 and the Second Schedule's Requiring-Body-pays rule, the displaced family's new house and land come free of stamp duty and registration charges to the family.
• The Section 46 border: a company building its land bank by negotiation cannot route documents through the acquisition exemption; only the Act's compulsory machinery and its agreements carry Section 96.

4. Related Topics and Provisions

• The compensation package (Topics 36 to 43): what arrives untaxed
• Section 46 (Topic 57): the carve-out's regime
• The Second Schedule (Topic 48): the stamp-duty-on-the-project rule
• Fourth Schedule alignment (Topic 88): the tax question's travelling edge