Budget 2026: FM Proposes Income Tax Exemption on Compensation from Compulsory Land Acquisition Under RFCTLARR Act [Read Finance Bill 2026]

The Union Budget for the Financial Year 2026-27 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today (Sunday, 1 February 2026).

The Finance Minister has proposed providing a specific income-tax exemption on compensation received from compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act).

As per the proposal in the Finance Bill, 2026, the exemption will be available to individuals and Hindu undivided families (HUFs) on any income arising from an award or agreement made on account of compulsory acquisition of land under the RFCTLARR Act. However, the exemption will not apply to awards or agreements made under Section 46 of the Act, which deals with land acquisition through private purchase arrangements.

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The move is aimed at providing clarity and certainty in the tax treatment of compensation received under compulsory land acquisition proceedings which often involve prolonged processes and rehabilitation measures. The exemption recognises the involuntary nature of such acquisitions and seeks to reduce the tax burden on affected landowners.

Currently, the tax treatment of compensation received under land acquisition laws has been subject to interpretation, with disputes arising over applicability of exemptions in certain cases. The proposed amendment seeks to explicitly exempt such income from tax and reduce litigation.

The proposed exemption will take effect from 1 April 2026 and will apply to the tax year 2026-27 and subsequent years.

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