Representative image for tax.
Credit: iStock Photo
In what could come as a shocker to landowners, hundreds of farmers whose land has been notified for the formation of Bengaluru’s Peripheral Ring Road (PRR) may have to pay tax on the compensation they receive.
The Bangalore Development Authority (BDA) has begun the process of acquiring about 2,560 acres of land as per the Land Acquisition Act, 1894. Income tax exemptions, however, apply only to properties acquired under the 2013’s fair compensation Act.
As per the order released by the state government on Sept 21, the 1894 Act would form the basis for determining compensation by considering the guidance value of the village. The order also assured that farmers would be compensated fairly, following a consent-based approach.
While Section 96 of the 2013 Act provides exemption from income tax in respect of all compulsory acquisitions, there is no such provision in the 1894 Act that the BDA follows. What’s more, on October 29 this year, a division bench of the HC ruled that tax exemptions cannot be applied for acquisition under all statutes except the 2013 Act.
Double whammy
The high court ruling has caused anxiety among thousands of farmers whose land has been notified for the 73-km PRR, now known as the Bengaluru Business Corridor (BBC).
That is because farmers will not only be denied fair compensation as per the 2013 Act but will also be liable to pay income tax on what can be termed capital gains. Some say landowners could lose a minimum of 12.5% due to Tax Deducted at Source (TDS) and income tax liabilities.
The tax implications come just months after the government drastically reduced the guidance value of properties notified for the PRR acquisition to reduce the compensation amount.
“The government cannot be stubborn and play havoc with farmers’ lives. Even farmers may have to pay capital gain tax because the Income Tax Department does not consider agricultural land situated in the municipal limits as farmland,” a legal expert said.
He suggested that the BDA declare the process of acquisition in accordance with the 2013 Act through an amendment or ordinance. “This is the only way to protect the interest of farmers.”
LK Atheeq, chairperson of Bengaluru Business Corridor Ltd, said he would discuss the high court order with the legal team to understand its implications on the PRR project.