Classify the award stream before choosing the tax year
For tax year 2026–27, section 67(12) of the Income-tax Act, 2025 provides special capital-gains rules for a qualifying compulsory acquisition or a transfer whose consideration was determined or approved by the Central Government or RBI, where compensation or consideration is enhanced by a court, tribunal or other authority. The original award, enhancement and an interim-order receipt have different timing rules. This article assumes a taxable qualifying capital asset and no applicable exemption or other overriding relief. CBDT enacted Act: section 67(12) and (13).
Keep the original award separate from cash instalments
Clause (a) assigns capital gains computed with reference to the original compensation or consideration to the tax year in which that compensation, or part of it, was first received. Do not automatically prorate the original award's capital-gains computation to the fraction of cash collected. Preserve the award, first-receipt evidence and applicable tax basis. The simplified illustration stipulates allowable cost and no other deductions; actual deductions and special asset rules need independent review. CBDT enacted Act: section 67(12) and (13).
Track enhancement receipts without recycling the original cost
Clause (b) assigns the enhancement to the tax year in which that amount is received. Under subsection (13)(a), acquisition and improvement costs for the amounts in clauses (b) and (c) are nil. Keep enhancement principal distinct from the original award and from separately identified interest or other components. This article does not determine the tax treatment of every interest component or litigation expense from its label alone. CBDT enacted Act: section 67(12) and (13).
Identify receipts under interim orders explicitly
Clause (c) provides that enhanced compensation received pursuant to an interim order is income of the tax year in which the final order is made. A bank receipt must therefore carry a link to the order under which it arose. Do not automatically apply the ordinary enhancement receipt-year rule to an interim-order payment. Equally, merely describing a dispute as pending does not establish that a receipt was pursuant to an interim order. CBDT enacted Act: section 67(12) and (13).
Retain reduction orders and reassessment evidence
Clause (d) requires recomputation where the specified compensation or consideration is reduced by a court, tribunal or other authority, using the reduced amount as full consideration. Reconcile the earlier assessed computation, the reduction order and any repayment. A reduction is not implemented simply by netting a current bank payment against an unrelated gain. Determine the supported procedural route and resulting tax effect separately; the provision is not a promise of an automatic refund on the order date. CBDT enacted Act: section 67(12) and (13).
Reconcile recipient, period and component histories
Subsection (13)(b) addresses enhancement received by another person because of death or another reason, deeming that person's capital-gains income on the stated facts. Preserve the legal basis for the recipient. This guide uses the 2025 Act as amended by Finance Act, 2026 for the stated tax year; it does not relabel FY 2025–26 transactions with new section numbers. Cross-enactment award histories require the applicable transition analysis before using this register. CBDT enacted Act: section 67(12) and (13).
Applicable primary references
CBDT enacted Act: section 67(12) and (13)
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: First receipt of part of the original award
Assume qualifying original compensation ₹100 lakh, allowable cost ₹40 lakh and first receipt ₹30 lakh in tax year 2026–27, with no other adjustment. The original-award capital gain is ₹60 lakh in that year, not minus ₹10 lakh based only on cash received. The remaining award receivable is ₹70 lakh.
Illustrative example 2: Enhancement does not get a second acquisition cost
Assume a company receives a qualifying non-interim enhancement of ₹25 lakh in tax year 2026–27. Acquisition and improvement costs for this enhancement are nil under subsection (13)(a). With no other relevant adjustment, the enhancement component is ₹25 lakh; deducting the original ₹40 lakh cost again would incorrectly produce minus ₹15 lakh.
Illustrative example 3: Separate interim and ordinary receipts
Assume June 2026 receipts comprise ₹20 lakh of enhancement pursuant to an interim order and ₹10 lakh of ordinary non-interim enhancement. Total cash is ₹30 lakh, split ₹20 lakh to the clause (c) final-order timing register and ₹10 lakh to the clause (b) receipt-year register. With no final order by the October review date, receipt alone does not select the charge year for the ₹20 lakh; do not treat the review date as a final-order date.
Illustrative example 4: Reduction of original compensation
Assume an earlier assessed original-award computation used ₹100 lakh compensation less ₹40 lakh allowable cost, giving ₹60 lakh. A qualifying reduction order reduces compensation to ₹80 lakh. With the same cost and no other adjustment, recomputed gain is ₹40 lakh, a ₹20 lakh decrease. This is a gain bridge, not a calculation of refund or interest.
Illustrative example 5: Two enhancement receipts
Assume non-interim enhancement receipts of ₹15 lakh and ₹10 lakh in the same tax year, with no other relevant adjustment. The enhancement receipt control totals ₹25 lakh. Recording an enhancement order's ₹25 lakh total again alongside both receipts would duplicate it to ₹50 lakh.
Illustrative example 6: Separate the components of a remittance
Assume a remittance of ₹32 lakh is supported as enhancement principal ₹25 lakh and separately identified interest ₹7 lakh. The enhancement register contains ₹25 lakh and a separate ₹7 lakh tax-analysis line. Treating all ₹32 lakh as principal overstates that component by ₹7 lakh; the interest's tax treatment is outside this model.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm taxable asset and period | Establish capital-asset status, enactment and any overriding relief. |
| 2 | Identify the qualifying transfer | Preserve acquisition or approved-consideration documents. |
| 3 | Separate award components | Distinguish original award, enhancement, interest and other amounts. |
| 4 | Record first original receipt | Link the bank evidence to the original award. |
| 5 | Reconcile original tax basis | Support cost, deductions and the earlier computation. |
| 6 | Track enhancement receipts | Do not repeat original acquisition or improvement costs. |
| 7 | Flag interim orders | Retain the actual order and monitor the final-order date. |
| 8 | Capture reductions | Link the reduced consideration to earlier assessed figures. |
| 9 | Check recipient identity | Preserve succession or other entitlement evidence where relevant. |
| 10 | Approve the tax and procedure bridge | Determine charge year, recomputation route and actual liability separately. |
Sixteen practitioner FAQs
1. Which enactment does this guide use?
The Income-tax Act, 2025 as amended by Finance Act, 2026 for tax year 2026–27.
2. Does it automatically govern an AY 2026–27 return?
No. Determine the law applicable to FY 2025–26 separately.
3. Does the rule concern only compulsory acquisition?
It also addresses the specified Central Government or RBI determined or approved consideration on its conditions.
4. When is the original-award gain assigned?
To the tax year in which the original compensation or part thereof is first received.
5. Is the original capital gain necessarily limited to cash collected?
No. Clause (a) refers to the computation with reference to the original award or consideration.
6. When is an ordinary enhancement assigned?
Under clause (b), to the tax year of receipt.
7. Can original acquisition cost be deducted again from an enhancement?
Subsection (13)(a) takes acquisition and improvement costs as nil for the specified enhancement amounts.
8. Does that determine every litigation-cost deduction?
No. Assess any other claimed deduction independently.
9. What changes for an interim-order receipt?
Clause (c) selects the tax year in which the final order is made.
10. Does a pending appeal alone prove the interim-order condition?
No. Examine the actual order supporting the receipt.
11. What should happen after a qualifying reduction?
Recompute on the reduced consideration under clause (d), using the supported procedural route.
12. Does the reduction amount equal the tax refund?
No. Recompute tax and any related procedural consequences separately.
13. Should interest always be grouped with principal?
No. Identify its legal character and tax treatment separately.
14. Can another recipient be relevant?
Subsection (13)(b) addresses the stated circumstances of enhancement received by another person.
15. Do the illustrations establish an exemption?
No. They assume taxable qualifying compensation and no overriding relief.
16. What should the permanent register retain?
Award and order history, receipts, components, recipient evidence and reproducible computations.
Conclusion
Separate the original award, later enhancement, interim receipts and final orders. Section 67(12) uses different timing rules, while subsection (13) prevents repeating acquisition and improvement costs against enhancements.