Start with the insured event and the correct period
Section 67(2)–(4) of the Income-tax Act, 2025 addresses money or other assets received from an insurer because a capital asset was damaged or destroyed in the specified circumstances. Profits or gains are chargeable under Capital gains in the tax year of receipt. This guide concerns tax year 2026–27 under the enacted Act as amended by Finance Act, 2026. It is not an AY 2026–27 return guide: an earlier financial year's return requires its own applicable enactment analysis. CBDT: Income-tax Act, 2025, sections 67(2)–(4) and 72.
Document the statutory event rather than just an insurance label
The specified events are flood, typhoon, hurricane, cyclone, earthquake or another convulsion of nature; riot or civil disturbance; accidental fire or explosion; and enemy action or action combating an enemy, with or without declared war. Keep incident reports, surveyor findings and the insurer's settlement description together. A payment called compensation is not sufficient evidence of this trigger. For events outside the list, determine the appropriate treatment separately rather than automatically extending this provision. CBDT: Income-tax Act, 2025, sections 67(2)–(4) and 72.
Separate the claim, settlement and actual receipt records
Maintain separate dates and amounts for the damage, claim submission, insurer's acceptance, cash receipt and delivery of a replacement asset. The statute selects the year of receipt for the resulting profits or gains. A receivable in the accounts and a receipt for this provision should not be equated without examining the actual facts. This article does not settle constructive-receipt disputes or the allocation of tax cost across receipts in different years. CBDT: Income-tax Act, 2025, sections 67(2)–(4) and 72.
Value non-cash assets on the receipt date
For section 72, the money received and the fair market value of other assets on the date of receipt provide the deemed full consideration. Obtain a valuation addressed to that date, with asset identity, condition and assumptions. An insured sum, replacement budget, later appraisal or accounting carrying amount may be useful evidence but is not automatically the statutory value. Section 67(4) adopts the insurer definition in section 2(9) of the Insurance Act, 1938; retain support that the payer meets it. CBDT: Income-tax Act, 2025, sections 67(2)–(4) and 72.
Keep consideration distinct from the capital-gains computation
The consideration bridge is one input into the applicable computation. Establish capital-asset classification, tax cost, relevant deductions, special computation rules and any relief separately. The illustrations isolate consideration for assumed qualifying non-depreciable capital assets. They do not prescribe depreciation-block treatment, tax rates or a complete liability. A replacement purchase should have its own cost file; spending the proceeds does not by itself net that expenditure against deemed consideration. CBDT: Income-tax Act, 2025, sections 67(2)–(4) and 72.
Reconcile the tax file to the accounting entries
Use one incident identifier across the asset register, claim, bank statement, receipt valuation and tax working. Reconcile accounting derecognition and compensation entries without allowing their presentation to select the tax year or tax value automatically. Where a settlement bundles capital-asset damage, inventory and business interruption, support the component analysis instead of assigning the whole amount to this provision merely because one asset was damaged. CBDT: Income-tax Act, 2025, sections 67(2)–(4) and 72.
Applicable primary references
CBDT: Income-tax Act, 2025, sections 67(2)–(4) and 72
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Cash receipt versus carrying amount
A company receives ₹50 lakh in July 2026 for an assumed covered capital asset. Its book carrying amount is ₹30 lakh. The consideration input is ₹50 lakh, not ₹20 lakh. The ₹20 lakh arithmetic difference is not represented as the final taxable capital gain.
Illustrative example 2: Mixed settlement
A company receives ₹20 lakh cash and another asset with supported receipt-date fair value of ₹15 lakh. Deemed consideration is ₹35 lakh. An insured sum of ₹40 lakh does not replace that ₹35 lakh receipt-based bridge.
Illustrative example 3: Later valuation movement
An asset received on 15 October 2026 has fair value ₹12 lakh then and ₹18 lakh on a later valuation date. Use the ₹12 lakh receipt-date value for this provision; the subsequent ₹6 lakh increase does not retrospectively increase that consideration input.
Illustrative example 4: Claim amount is not receipt amount
A company's ₹100 lakh claim is finally settled and wholly received at ₹60 lakh, with no other cash or asset receipt. The receipt bridge is ₹60 lakh. The ₹40 lakh rejected claim balance is not an additional amount received.
Illustrative example 5: Two receipts in the same tax year
For one qualifying incident, the company receives ₹40 lakh on 10 June 2026 and ₹10 lakh on 10 September 2026. Its same-year cash receipt control totals ₹50 lakh. Retain both bank references; counting the settlement total again would incorrectly produce ₹100 lakh.
Illustrative example 6: Replacement budget
A company receives ₹80 lakh against an insured sum of ₹100 lakh and separately buys a replacement for ₹120 lakh. The receipt consideration remains ₹80 lakh. Subtracting replacement expenditure would produce minus ₹40 lakh, which is not the consideration rule in section 67(2)(b).
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the period | State the tax year and applicable enactment in the working. |
| 2 | Classify the damaged property | Support capital-asset status and flag special computation rules. |
| 3 | Prove the event | Match incident evidence to section 67(3). |
| 4 | Check the insurer | Retain payer identity and statutory-definition support. |
| 5 | Separate settlement components | Distinguish capital assets, inventory and interruption amounts. |
| 6 | Build the receipt chronology | Match cash and non-cash delivery dates to evidence. |
| 7 | Value assets received | Obtain receipt-date fair value with documented assumptions. |
| 8 | Reconcile consideration | Total money and non-cash value without double counting. |
| 9 | Complete the separate gains computation | Support tax cost, deductions, special rules and relief. |
| 10 | Approve the book-to-tax bridge | Tie the incident file to ledgers and the final tax working. |
Sixteen practitioner FAQs
1. Is this an AY 2026–27 ITR guide?
No. Its stated period is tax year 2026–27 under the 2025 Act.
2. Does every insurance payment fall within this rule?
No. Check capital-asset damage or destruction, the insurer and the listed event.
3. Does the section cover damage as well as destruction?
Yes, subject to its other conditions.
4. Is every fire enough?
The listed circumstance is accidental fire or explosion; document the facts.
5. Are riots included?
Riot or civil disturbance is expressly listed.
6. Must enemy action occur during declared war?
The text includes the specified action with or without a declaration of war.
7. Which year does the special rule select?
The tax year in which the money or other asset was received.
8. Does an accounting receivable prove receipt?
Do not assume that without the factual and legal analysis.
9. How is an asset received valued?
At fair market value on its receipt date for the deemed-consideration rule.
10. Can a later appraisal be used unchanged?
Only if it validly supports the required receipt-date value; the later date itself is not the statutory date.
11. Is the sum insured always consideration?
No. Reconcile the actual money and other assets received.
12. Is deemed consideration the taxable gain?
No. Apply the relevant capital-gains computation separately.
13. Can replacement spending simply reduce consideration?
That is not the rule in section 67(2)(b); examine any separate relief on its own terms.
14. Do these illustrations resolve depreciable blocks?
No. They assume qualifying non-depreciable capital assets.
15. How should a bundled claim be handled?
Support the allocation and legal treatment of each component.
16. What should the reviewer reproduce?
The qualifying event, insurer, receipt dates, valuation and separate gains computation.
Conclusion
For qualifying capital-asset insurance receipts, establish the insured event, receipt year and receipt-date value before computing capital gains. The consideration figure is not itself the taxable gain.