On 9th January, 2025, Amit (a bank employee) received ₹ 6,00,000 towards interest on enhanced compensation from State Government in respect of compulsory acquisition of his land effected during the financial year 2016-17

Answer 4A(i) Section 145B of the Income Tax Act, 1961 provides that interest received by the assessee on enhanced compensation shall be deemed to be the income of the assessee of the year in which it is received, irrespective of the method of accounting followed by the assessee and irrespective of the financial year to which it relates. Section 56(2)(viii) states that such income shall be taxable under the head 'Income from other sources. 50% of such income shall be allowed as deduction by virtue of section 57(iv) and no other deduction shall be permissible from such Income. Therefore, legal expenses incurred to receive the interest on enhanced compensation would not be allowed as deduction from such income. Computation of interest on enhanced compensation taxable as "Income from other sources" for the A.Y 2025-26 Particulars Amount (₹) Interest on enhanced compensation taxable u/s 56(2)(viii) 6,00,000 Less: Deduction under section 57(iv) (50% x ₹ 6,00,000) (3,00,000) Taxable interest on enhanced compensation 3,00,000