Land Acquisition Pay-Out: Is Your TDS Cut Legal?

Karnataka High Court ruled that interest paid under Section 28 of the Land Acquisition Act is part of compensation itself — not separate income — so no TDS should be deducted before paying it to landowners.

Here's what happened: Karnataka High Court ruled that interest under Section 28 of the Land Acquisition Act is legally part of the compensation amount, not a separate income stream.. Because it is classified as compensation and not interest income, the court held that TDS cannot be deducted from this payment before it reaches the landowner.. The court directed that the enhanced compensation, including Section 28 interest, must be paid to affected parties within two months without any tax deduction at source..

What you should do: Check your land acquisition order documents to identify whether interest is awarded under Section 28 — this label determines whether TDS protection applies to you.. If TDS has already been cut on your compensation interest, file your Income Tax Return and claim a refund by correctly classifying the receipt under the applicable head.. Write to the acquiring authority or their bank citing this Karnataka HC ruling before disbursement to ensure they do not deduct TDS on your payout..

Section 28 interest is awarded by a court when it enhances the original land compensation on appeal — it travels with the award, not against your income, so it deserves different tax treatment than ordinary interest.