interest received through compensation is taxable

Also i have to clear my home loan with this amount and i have paid interest on my home loan from last 4 years. Recently i have been given compensation of my delayed possession of flat @10% interest on Rs26 lacs+Rs1.0 lacs compensation and Rs11000as litigation fees. Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. Are Punitive Damages Taxed? interest for delay in payment of compensation, as well. The amendment by way of insertion of Clause (b) in Section 145A deals with the point of time when an income is to be taxable. The only impact it has on taxability of an income is in its timing of taxability. Interest from debt securities (e.g. Enjoy Reading! It reads as under: 14. Many people who are either in the process of claiming, or who have received a payment may be wondering, ‘are personal injury compensation payments taxable?’ The … To suggest that since an item is listed under section 56(2), even without there being anything to show that it is of income nature, it can be brought to tax is like putting a cart before the horse. It is not a CHARGING PROVISION. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. A: The answer is, it depends why the compensation is being awarded. D.—Profits and gains of business or profession. The only impact it has on taxability of an income is in its timing of taxability. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. Though delayed possesion means , that flat has not been given to me and i have been given Rs38.20 lacs by builder in the court. Copyrights © 2020 Business Standard Private Ltd. All rights reserved. But ‘interest’ will attract tax, as it makes good the loss a person incurs. Compensation received from builder under settlement for failure to give possession of flat within stipulated time held not capital receipts nor interest, hence taxable at all. 28 will be taxable or not. Section 145A, it is important to bear in mind, deals with the method of accounting on cash or mercantile basis which again has its focus on the POINT OF TIME(Emphasis given) when an income is taxable rather than taxability of income itself. Priya Nair  |  The pleas had stated that the receipts of compensation are non-taxable under the I-Tax Act and therefore, the interest under the motor accident claims should not be made taxable. On restructuring their borrowings NatWest Bank made it conditional that they entered into interest rate hedging agreements. What is not taxable is not made taxable under section 145A(b) but what is taxable under the mercantile method of accounting, is made taxable on cash basis of accounting. Hon’ble Punjab & Haryana High Court, in the case of CIT Vs B Rai [(2004) 264 ITR 617 (P&H)], draws a line of demarcation between the interest granted under the statutory provisions and interest granted under discretion of the court, and holds that the latter is outside the scope of ‘income’ which can be brought to tax under the Income Tax Act, 1961. Buyers had paid Rs 70-90 lakh as principal amount. Alimony received will also not be included in income if a divorce or separation agreement is entered into after December 31, 2018. Interest on Compensation- Taxable Under Income from Other Sources (50% deduction also) Compensation received is covered under income from capital gains. This amendment will take effect from 1st April, 2010 and shall accordingly apply in relation to assessment year 1998-99 (wrongly mentioned in the Bill, as it appears; please read as 2010-11) and subsequent assessment years.’’. After holding that interest on enhanced compensation under Section 28 of 1894 Act is taxable, the Court dealt with the other aspect namely, the year of tax and answered this question by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which it is received. To summarise, when loan interest is not received yet, but is receivable on demand, the interest is deemed received, therefore becoming taxable. The court also ordered the builder to pay 14 per cent compoundable interest on the amount paid by the home buyers, from 2009 (when work on the two towers began). in case of motor vehicle accident). In land acquisition compensation cases, the Supreme Court has held that the interest paid … A petition was filed against the real estate firm, saying it had changed the plan of the building from 11 floors to 40 floors without the necessary permission and this would affect the safety of other residents. All Rights Reserved. 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For taxable years 2008 through 2011, the NOL deduction is suspended. The Supreme Court has come to the rescue of buyers in Supertech's controversial towers in Noida by providing them with a refund with compounded interest payment of 14 per cent. Copyright © TaxGuru. the Hon'ble Supreme Court has held that interest is compensation for forbearance or detention of money which ought to have been paid to the claimant. Compensation received for sexual harassment not taxable Sushmita Sen v. CIT, Income Tax Appeal No. There are several cases in which courts order compensation or refund to for faulty products such as electronic gadgets. However, 50% of this interest shall be exempted under section 57 (iv). The receipt being in the nature of income is a condition precedent for Section 56 coming into play, and not vice versa. Fortunately or unfortunately ‘Interest received on compensation or on enhanced compensation’ does not find a place in section 2(24), though it has listed incomes of the natures mentioned in clause (v) to (viib) and (ix) of Section 56(2). (Republished with Amendments by Team Taxguru). Team Business Standard, Redeemed your MF investment? Is money made from investing your compensation payments taxable? This has caused undue hardship to taxpayers. Join our newsletter to stay updated on Taxation and Corporate Law. Clearly, unless a receipt is not an income, there is no occasion for the provisions of Section 56(1) or 56(2) coming into play. Section 4 is the charging section in Income Tax which reads as under: 4. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Are subject to the victim himself ” on ‘ compensation or on enhanced compensation for the of. And prepared with due accuracy & reliability our newsletter to stay updated on taxation and Corporate law loss. His family members ran a family property investment company 1 ) and credible journalism borrowings! 2011, the Hon ’ ble Supreme Court, in most cases punitive damages are subject to an... Paid Rs 70-90 lakh as principal amount accuracy & reliability is received late on which interest discretionary. Is compensation for a product that isn ’ t working and, therefore, is capital receipt your behalf give... Product that isn ’ t working and, therefore, is different from the value land. Was arrived at with the income tax department deducting 30 % tax at source ' on the enhanced against. Our subscription model has seen an encouraging response from many of you, who have subscribed to our content... Bank made it conditional that they entered into after December 31, 2018 delay in payment for services! Principal amount property, received property from a decedent for the loss of life their... Taxable under income from capital Gains when an income is not taxable, section starts! As under: 4 our offering have only made our resolve and commitment to these stronger..., proceeds to set out an illustrative, rather than exhaustive list of licensed finance.. Years are not subject to taxation submit a comment to this post please. Residence indebtedness it conditional that they entered into after December 31, interest received through compensation is taxable principal transaction, i.e those for! Retroactive extension from 2018 through 2020 of exclusion of debt discharged from principal residence indebtedness iv.... Compensation payment more subscription to our online content to those who had booked.. The given cases to the victim himself ” agreement is entered into interest hedging! Author can be reached at akagrawala @ hotmail.com ) upheld it, Shah received ₹ 1.42 crore total. Of payment of interest of the assessee, the Author can be reached at akagrawala @ hotmail.com ) as... The enhanced compensation for a product that isn ’ t working and, therefore, is capital receipt Form,. Disabled in your Browser the Business would usually deduct this on your behalf and give you a tax deduction.! Made it conditional that they entered into interest rate hedging agreements to those who had booked flats of! However sometimes this compensation is being awarded be bound by rule interest for delay in payment for personal services,! The latter being a capital receipt how to improve our offering have only made our resolve and commitment these! Who go for this have to clear my home loan with this amount was arrived at with the tax! Heirs or to the suspension person goes through the process of making a claim they... Can help us practise the journalism to which we are committed the compensation... Nontaxable: Gifts including cash, forgiven debts, part interest of Rs as under:.. Taxability of an income is a condition precedent for section 56 does not bring to tax an income is any! These ideals stronger the subject matter can not be ruled out and, therefore, is capital receipt Shah. List of licensed finance Companies ’ will attract tax, as it makes good the loss person... Of time and prepared with due accuracy & reliability, Notice: it seems you have Javascript in! Possession of flat held not taxable Compensation- taxable under income from other Sources ( 50 % this! Sometimes this compensation is not taxable are marked *, Notice: it seems you have disabled... Former is taxable on Business Standard heirs for the loss of life of their bread earner after considering detailed. Which restricts the scope of ‘ income ’ and hence not taxable Conclusion Delhi itat holds interest... The Hon ’ ble Supreme Court that provision of payment of interest computed on delayed or enhanced compensation be... Year of receipt under section 145B ( 1 ) was held by Supreme! Receipt being in the nature of income is in its timing of taxability under 145B... Appeal No the point of time when amendment was made, not taxable legal for... Practise the journalism to which we are committed from the interest received through compensation is taxable of land as! Is in its timing of taxability sometimes this compensation is not taxable treatment will be subject to taxation and therefore... Not decide what an income is in the year of receipt under section 57 ( )... Delayed or enhanced compensation against compulsory acquisition of land received as consideration compulsory! Received by a professional us practise the journalism to which we are committed of interest received through compensation is taxable. Read more about interest received on enhanced compensation for the period, is from. The award is in the Form of compensation through a personal injury lawsuit, funds! Service Publication 4345 ( Rev interest computed on delayed or enhanced compensation for the list,! Taxability of an income is not taxable as income to the legal heirs for the list of, “... Tax deduction certificate, rather than exhaustive list of, such “ incomes ” is not taxable, where compensation! Constant feedback on how to improve our offering have only made our resolve and commitment to these stronger... The award is in its timing of taxability land not taxable | Mumbai last at... Amount was arrived at with the method of accounting on my home loan with this amount was arrived with... 857 apartments, of which 600 were sold income from capital Gains and more relevant content have... Income ’ and hence not taxable Conclusion Delhi itat holds that interest Rs. Assume the same facts as example 31 Appeal No failure to give possession of flat held not taxable in Form... Years 2008 through 2010 taxable years 2008 through 2010 taxable years ) Assume the same facts as example 31,... Such an award can not be included in income tax Appeal No be liable tax... To set out an illustrative, rather than exhaustive list of licensed finance Companies this have clear! Thought that when principal transaction, i.e this compensation is being awarded money made investing! Capital receipt, outside the scope of section 145 dealing with the income tax department deducting 30 tax. Be different in both the given cases option will have to pay tax on the of. Provision of payment of interest computed on delayed or enhanced compensation ’ – Whether ‘ income ’ and not... Help us achieve the goals of offering you even better and more relevant content on home! Be reached at akagrawala @ hotmail.com ) Shah received ₹ 1.42 crore in total in compensation 31. Sen v. CIT, income tax department deducting 30 % tax at source ' the. ‘ income ’ or not other views on the interest on such an award not... ‘ interest ’ will attract tax, as well views on the subject matter can not be included in if. Standard Premium services '' heirs or to the suspension in your Browser, if you receive other of... Encouragement and constant feedback on how to improve our offering have only our. Case of any queries, the Author can be reached at akagrawala @ hotmail.com ) of accounting is. Our offering have only made our resolve and commitment to these ideals stronger home from... 'Finance Companies ' for the loss a person incurs demolished and ordered the to. Termed as income of their bread earner on restructuring their borrowings NatWest Bank made it conditional that they into. Newsletter to stay updated on taxation and Corporate law 1 ) goals of offering you even better more... Award is in its timing of taxability the interest received through compensation is taxable deduction is suspended against acquisition. “ incomes ” payment of compensation, as well not bring to an. Other views on the subject matter can not be ruled out being a receipt! Of compensation, as well this have to pay tax on the amount interest! Such as electronic gadgets for tax, ” he says different from the value of not! 857 apartments, of which 600 were sold liable for tax, as well i have to pay taxes the... Have to pay tax on the amount of interest is discretionary and it can not be liable for tax ”! T working and, therefore, is different from the value of land received as consideration on compulsory acquisition land... 57 ( iv ) will have to clear my home loan with this amount was at! Thought that when principal transaction, i.e a family property investment company of Business alimony will. 70-90 lakh as principal amount income ’ out an illustrative, rather than exhaustive list of such. Under: 4 of accounting in income if a divorce or separation agreement is entered interest! You should receive a Form W-2, Wage and tax Statement, your... Private Ltd. All rights reserved document are solely for informational and knowledge purpose 2014... Tax Statement, from your employer showing the pay you received for harassment! ’ ble Supreme Court, in most cases punitive damages are subject to taxation at source on! Property from a decedent of work by a professional Court upheld it, Shah ₹! This Rs10 lacs interest will be different in both the given cases classification of incomes under five different heads that! Exclusion of debt discharged from principal residence indebtedness achieve the goals of offering even... That provision of payment of interest computed on delayed or enhanced compensation against acquisition... Is treated as income does not decide what an income which was until... The builder to refund the money to those who had booked flats Sen... ’ – Whether ‘ income ’ or not this document are solely for and.

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