A land-acquisition payment is not automatically a 10% withholding case. For tax year 2026–27, identify the resident recipient, confirm a compulsory acquisition of covered immovable property, then test the agricultural-land exclusion and any qualifying exempt award. Only the remaining covered sums enter the ₹5 lakh threshold working.
This article applies the Income-tax Act, 2025, as amended by Finance Act, 2026 from 1 April 2026, checked on 25 October 2026. Section 393(1), Table serial number 3(iii), covers compensation or enhanced compensation, and consideration or enhanced consideration, for compulsory acquisition under law of immovable property other than agricultural land. The stated rate is 10% and threshold ₹5,00,000. These are withholding rules; they do not compute the recipient’s final capital gain or exemption.
Read the threshold with section 393(1), not an isolated rate table
The opening provision requires deduction on the entire covered amount when the amount or aggregate exceeds the threshold during the tax year. Thus ₹5,00,000 exactly and ₹5,00,010 produce very different withholding outcomes. The excess is the trigger, not the tax base. Maintain a payee-wise annual register and reconcile earlier credits or payments before processing a later instalment.
The 2025 Act’s opening rule specifies credit or payment, whichever is earlier. Section 393(11) also addresses credits to suspense or similarly named accounts. Do not copy a legacy payment-only workflow without checking the law for the stated period. A subsequent cash remittance of an amount already subjected to TDS is not a second gross award. Establish whether an entry is genuinely an amount due to the identified recipient and preserve the underlying award and accounting evidence.
Agricultural land has a specific withholding definition
Section 402(2)(b) includes agricultural land in India situated in the areas referred to in section 2(22)(iii) for the compulsory-acquisition entry. The agricultural-land definition used for the ordinary property-transfer entry differs. Do not import that entry’s urban-land exclusion into this compulsory-acquisition test. Actual agricultural character still needs evidence; a description in a payment spreadsheet is insufficient.
Exempt awards need a separate documentary conclusion
Section 393(4), Table serial number 3, provides no deduction on income by way of an award or agreement exempted from income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. Retain the legal basis establishing that exemption for the particular award. Government payment, acquisition terminology or a claimant’s request alone does not prove it. This article does not assume every award under every acquisition law is exempt.
Separate compensation from separately identified interest and other receipts: their character and applicable provisions need independent examination. For a non-resident, use the relevant non-resident provisions rather than this resident table. Check a valid lower/no-deduction certificate under section 395, its actual scope and validity; a pending application is not the certificate. Verify PAN and any applicable higher-rate rule before using the normal-rate examples.
Close the gross-to-net and recipient-credit trail
Reconcile the award, recipient identity, land category, credits, bank payments, TDS remittance and statement/certificate records. The examples assume a resident individual with valid PAN, no special higher-rate rule, no net-of-tax arrangement and no lower certificate. Normal resident withholding is illustrated without adding cess or surcharge. Final tax, statutory rounding of remittance and return-level adjustments are outside these simple base calculations. Common mistakes are taxing only the excess, pooling unrelated recipients, using the ordinary sale’s threshold, and deducting again when an already-taxed payable is discharged.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Exactly at the threshold
Covered compensation credited in the tax year totals ₹5,00,000, with no earlier covered sum. It does not exceed ₹5,00,000. TDS under this entry is ₹0; do not apply the ordinary property-sale threshold instead.
Illustrative example 2: A small excess changes the full base
Covered aggregate is ₹5,00,010. Normal TDS is ₹5,00,010 × 10% = ₹50,001, not 10% of the ₹10 excess. Gross less this withholding is ₹4,50,009, before any other lawful adjustment.
Illustrative example 3: Gross award and net payment
A covered ₹6,00,000 award is credited and paid together. TDS ₹60,000 leaves ₹5,40,000 payable to the recipient. The withholding does not establish a final income-tax liability of ₹60,000.
Illustrative example 4: Later instalment crosses the annual limit
A first covered ₹3,00,000 payment had no earlier credit and no TDS. A later ₹2,50,000 credit takes the tax-year total to ₹5,50,000. Cumulative normal TDS is ₹55,000; with ₹0 previously deducted, the catch-up is ₹55,000, leaving ₹1,95,000 from the later ₹2,50,000 payment, assuming sufficient cash and no other adjustments.
Illustrative example 5: Verified agricultural land
Compensation ₹12,00,000 relates wholly to land independently established as agricultural land in India within section 402(2)(b). It is outside this compulsory-acquisition entry: TDS here is ₹0. This conclusion does not decide the recipient’s separate capital-gain treatment.
Illustrative example 6: Established exempt award
An ₹18,00,000 award is independently established to satisfy the section 393(4), Table 3, exemption condition. Withholding under this entry is ₹0, rather than the ₹1,80,000 normal calculation that would apply absent the established exemption and other qualifications.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify period and residence | Tax-year working and recipient residence evidence. |
| 2 | Identify compulsory acquisition | Applicable acquisition law, award and payment authority. |
| 3 | Classify the property | Land/building schedule and actual land-use evidence. |
| 4 | Apply section 402 definition | Documented distinction from ordinary property-transfer withholding. |
| 5 | Test exempt-award condition | Reasoned section 393(4), Table 3, conclusion and supporting award. |
| 6 | Separate receipt components | Compensation, interest and other amounts individually classified. |
| 7 | Aggregate covered sums | Payee-wise tax-year credits, payments and earlier TDS. |
| 8 | Fix the deduction date | Credit/payment chronology, including relevant suspense entries. |
| 9 | Check certificates and PAN | Valid certificate scope, PAN and applicable rate review. |
| 10 | Reconcile compliance records | Gross award, net cash, remittance, statement and recipient credit trail. |
Sixteen practitioner FAQs
1. Is every acquisition payment covered?
No. Establish the statutory compulsory-acquisition category, recipient residence and exclusions.
2. Is ₹5 lakh a deduction from compensation?
No. It is a threshold; once exceeded, the normal computation applies to the entire covered amount.
3. Does exactly ₹5 lakh exceed the limit?
No, assuming no other covered amount for the tax year.
4. Is enhanced compensation named in the entry?
Yes. Track it with the relevant recipient and tax-year facts.
5. Can instalments be tested independently?
Not where annual aggregation under section 393(1) is required.
6. Should an already-taxed credit be counted again on payment?
Reconcile the same liability so its discharge does not become a second gross compensation entry.
7. Can the ordinary property-sale land definition be reused?
No. Section 402(2) distinguishes the two withholding entries.
8. Does urban location automatically remove the agricultural exclusion here?
No. Apply section 402(2)(b) and establish agricultural character.
9. Does zero TDS establish tax-free capital gains?
No. Withholding and final income computation are separate questions.
10. Are all government awards exempt from withholding?
No. Establish the specific exempt-award condition rather than relying on the payer’s identity.
11. Can interest be silently included with compensation?
Classify it separately and determine its applicable provision before calculating.
12. Does this resident table govern a non-resident claimant?
No. Examine the non-resident withholding framework.
13. Does filing a lower-deduction application change the rate immediately?
No. Check an actually issued, valid certificate and its coverage.
14. Does a ledger label defer the credit trigger?
Section 393(11) addresses suspense or similarly named account credits; examine the real facts.
15. Are the illustrations final tax calculations?
No. They show normal withholding bases with the stated assumptions.
16. What should the recipient reconcile?
Award amounts, bank credits and documented TDS against the applicable statement/certificate and tax-credit records.
Conclusion
For resident recipients, section 393(1), Table 3(iii), prescribes 10% TDS once covered compulsory-acquisition sums exceed ₹5 lakh in the tax year. Check agricultural-land exclusion and the separate exempt-award rule before calculating withholding.