Budget 2026: Tax relief for landowners affected by compulsory acquisition

Land acquired by government? Your compensation may now be tax-free

If your land is compulsorily acquired by the government under India’s land acquisition law, the Union Budget 2026–27 brings important tax relief for you.

 

The Budget proposes a specific income tax exemption for compensation received on compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act).

 

Who gets the exemption

 

Under the proposal, the exemption will apply to:

 

Individuals, and

 

Hindu Undivided Families (HUFs)

 

This means if you fall under either of these categories and your land is acquired compulsorily under the RFCTLARR Act, any income arising from the compensation will not be taxed.

 

 

What income is covered

 

The exemption applies to:

 

Compensation received through an award, or

 

Compensation agreed through a settlement agreement, as long as the acquisition is carried out under the RFCTLARR Act.

 

However, there is one exception. The exemption will not apply to awards or agreements made under Section 46 of the Act, which typically relates to acquisitions carried out through private companies or public-private partnership arrangements.

 

Land acquisition often happens without the landowner’s choice, especially for infrastructure projects such as highways, railways, industrial corridors, or urban development. Until now, there was uncertainty over whether compensation received under different provisions of the RFCTLARR Act could attract income tax. 

“The Budget 2026 has taken a decisive step in providing clarity and relief on taxation arising from compulsory land acquisition under the RFCTLARR Act, 2013. By exempting income received by an individual or Hindu Undivided Family from any award or agreement (except under Section 46), the Government acknowledges the need to shield affected landowners from additional tax burdens during such acquisitions. 

 

This is a significant development as it delineates the scope of taxable income, reduces litigation risk, and provides certainty for both taxpayers and authorities. This move aligns with the broader objective of promoting equitable compensation while ensuring that the acquisition process remains fair, transparent, and predictable." said Vipin Upadhyay, Partner, King Stubb & Kasiva, Advocates and Attorneys.