Enhanced compensation is any additional compensation received over and above the original compensation that was awarded. This can happen in a variety of situations, such as when:

• A court awards enhanced compensation in a land acquisition case
• An employee receives a bonus or promotion
• A business owner receives increased profits

Income tax is a tax that is levied on the income of individuals and businesses. In India, income tax is governed by the Income Tax Act, 1961.

The tax treatment of enhanced compensation received under income tax depends on the specific circumstances of the case. However, in general, enhanced compensation is taxable as income.

For example, if a court awards enhanced compensation in a land acquisition case, the enhanced compensation will be taxable as income from other sources. Similarly, if an employee receives a bonus or promotion, the bonus or promotion will be taxable as salary.

However, there are some exceptions to this general rule. For example, enhanced compensation received in the form of interest on compensation or enhanced compensation is exempt from tax under Section 10(37) of the Income Tax Act, 1961, if the transfer is of agricultural land.

Additionally, a deduction of 50% of the interest income received on compensation or enhanced compensation is allowed under Section 57 of the Income Tax Act, 1961.

EXAMPLE

One example of enhanced compensation received with specific state India is in the case of compulsory acquisition of land. When the government acquires land for public purposes, it is required to pay compensation to the landowneRs.This compensation is initially determined by the government, but landowners can challenge this in court if they believe it is inadequate. If the court finds in the landowner’s favor, it can award enhanced compensation.

For example, in the state of Gujarat, India, the government acquired land for the construction of a new airport. The landowners were not satisfied with the compensation offered by the government and challenged it in court. The court awarded enhanced compensation to the landowners, which was on average 30% higher than the original compensation offered by the government.

Another example of enhanced compensation received with specific state India is in the case of industrial accidents. If an industrial accident results in the death or injury of a worker, the worker or their family may be entitled to enhanced compensation from the employer. This compensation is usually awarded by a court or tribunal, and it is in addition to any compensation that the worker may be entitled to under the Workmen’s Compensation Act, 1923.

For example, in the state of Maharashtra, India, a worker was killed in an industrial accident. The worker’s family challenged the compensation offered by the employer in court. The court awarded enhanced compensation to the family, which was five times the amount of compensation originally offered by the employer.

FAQ QUESTIONS

What is enhanced compensation?

A: Enhanced compensation is a higher amount of compensation that is awarded to a landowner whose land is acquired compulsorily by the government. This can happen when the landowner challenges the original award of compensation in court and is successful.

Q: When is enhanced compensation received?

A: Enhanced compensation is typically received after the landowner has challenged the original award of compensation in court and has been successful. The court will then order the government to pay the landowner the enhanced compensation, along with interest.

Q: How is enhanced compensation taxed under income tax?

A: The taxability of enhanced compensation depends on a number of factors, including the nature of the land that was acquired and the reason for the acquisition.

• Agricultural land:Enhanced compensation received for the compulsory acquisition of agricultural land is exempt from income tax under Section 10(37) of the Income Tax Act, 1961.
• Non-agricultural land:Enhanced compensation received for the compulsory acquisition of non-agricultural land is taxable as capital gains under Section 45 of the Income Tax Act, 1961.
• Interest on enhanced compensation:Interest received on enhanced compensation is taxable as income from other sources under Section 56(2)(viii) of the Income Tax Act, 1961. However, a deduction of 50% of the interest income is allowed under Section 57(iv) of the Income Tax Act, 1961.

Q: What are the important things to keep in mind when filing income tax returns for enhanced compensation?

A: When filing income tax returns for enhanced compensation, it is important to keep the following things in mind:

• If the enhanced compensation is received for the compulsory acquisition of agricultural land, it is important to claim exemption under Section 10(37) of the Income Tax Act, 1961.
• If the enhanced compensation is received for the compulsory acquisition of non-agricultural land, it is important to compute the capital gain and pay tax on it accordingly.
• If interest is received on enhanced compensation, it is important to claim a deduction of 50% of the interest income under Section 57(iv) of the Income Tax Act, 1961.

CASE LAWS

• Nitin Kumar Vs ITO (ITAT Delhi)

In this case, the assesseehad received interest on enhanced compensation due to compulsory acquisition of his agricultural land under Section 28 of the Land Acquisition Act 1894. The ITAT held that the interest received under Section 28 of the Land Acquisition Act on enhanced compensation is part of the compensation, thereby not taxable.

• Virender Rathee Versus ITO (ITAT Delhi)

In this case, the assessee had received interest on enhanced compensation due to compulsory acquisition of his agricultural land. The ITAT held that the interest received on enhanced compensation is exempt from income tax under Section 10(37) of the Income Tax Act, 1961.

• CIT Vs Rama Bai (SC)

In this case, the Supreme Court held that the interest received on compensation or enhanced compensation for compulsory acquisition of land is taxable under the head “Income from Other Sources”. However, the Court also held that a deduction of 50% of such interest income is allowable under Section 57 of the Income Tax Act, 1961.