Section 96 of the LAAR Act, 2013: Comprehensive Analysis of Tax Exemption for Railway Land Acquisition and Fourth Schedule Enactments

Executive Summary

The application of Section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (LAAR Act) to railway acquisitions and other Fourth Schedule enactments represents a critical intersection of tax law, constitutional principles, and infrastructure development policy. This analysis establishes that railway land acquisitions qualify for complete income tax and stamp duty exemption under Section 96, based on the Central Government’s August 28, 2015 notification and established incorporation doctrines.

The Central Board of Direct Taxes (CBDT) Circular 36/2016 provides definitive clarification that compensation received under Section 96 is exempt from all income tax provisions, while the 2017 amendment to Section 194LA exempts such compensation from TDS obligations. This creates a unified tax treatment framework ensuring constitutional compliance and policy coherence across all infrastructure acquisition modalities.

I. Legislative Framework: Section 96 of the LAAR Act and Its Constitutional Foundation

Understanding Section 96’s Tax Exemption Provision

Section 96 of the LAAR Act provides unambiguous tax relief:

“No income tax or stamp duty shall be levied on any award or agreement made under this Act, except under section 46 and no person claiming under any such award or agreement shall be liable to pay any fee for a copy of the same.”

This provision represents a fundamental shift in land acquisition taxation philosophy, moving from a regime where landowners bore hidden fiscal costs to one ensuring complete compensation without tax erosion.

CBDT Circular 36/2016: Administrative Recognition of Broader Application

The CBDT Circular 36/2016 significantly clarifies the exemption’s scope:

“The exemption provided under section 96 of the RFCTLARR Act is wider in scope than the tax-exemption provided under the existing provisions of Income-tax Act, 1961… compensation received in respect of award or agreement which has been exempted from levy of income-tax vide section 96 of the RFCTLARR Act shall also not be taxable under the provisions of Income-tax Act, 1961.”

This administrative recognition demonstrates the Government’s intent to ensure comprehensive tax relief for land acquisition compensation across all applicable scenarios.

II. The Central Government’s 2015 Notification: Extending Benefits to Fourth Schedule Acts

Comprehensive Extension Through Section 113 Powers

The Central Government’s notification dated August 28, 2015, issued under Section 113(1) of the LAAR Act, represents a watershed moment for infrastructure acquisition taxation:

“The provisions of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, relating to the determination of compensation in accordance with the First Schedule, rehabilitation and resettlement in accordance with the Second Schedule and infrastructure amenities in accordance with the Third Schedule shall apply to all cases of land acquisition under the enactments specified in the Fourth Schedule to the said Act.”

The Railways Act, 1989 occupies item 13 in the Fourth Schedule, making it directly subject to this comprehensive extension of LAAR Act benefits.

Constitutional Imperative Behind the 2015 Notification

The notification’s preamble reveals the constitutional concerns driving the extension:

“…the Central Government considers it necessary to extend the benefits available to the land owners under the RFCTLARR Act to similarly placed land owners whose lands are acquired under the 13 enactments specified in the Fourth Schedule… uniformly apply the beneficial provisions of the RFCTLARR Act, relating to the determination of compensation and rehabilitation and resettlement.”

This language demonstrates legislative intent to prevent discriminatory treatment between different categories of land acquisition, addressing potential Article 14 violations.

III. Railway Act Acquisition Framework and the Tax Gap Analysis

Chapter IVA: Special Railway Projects Structure

The Railways Act, 1989, provides sophisticated land acquisition mechanisms through Chapter IVA, covering Special Railway Projects under Section 20A. The key provisions include:

Section 20E: Declaration of Acquisition – Establishes the procedural framework for declaring railway land acquisition

Section 20F: Determination of Compensation – Provides comprehensive compensation calculation methodology, including market value assessment, severance damages, and 60% solatium for compulsory acquisition

Section 20G: Market Value Criteria – Establishes specific criteria for market value determination

Section 20-O: Rehabilitation Framework – Critically, this section states:

“The provisions of the National Rehabilitation and Resettlement Policy, 2007 for project affected families, notified by the Government of India in the Ministry of Rural Development vide number F. 26/01/14/2007-LRD dated the 31st October, 2007, shall apply in respect of acquisition of land by the Central Government under this Act.”

NRRP-2007: The Critical Tax Gap

The comprehensive examination of the NRRP-2007 reveals a critical gap—the policy contains no provisions regarding taxation of compensation. The NRRP-2007 focuses exclusively on:

Substantive rehabilitation benefits
Procedural implementation frameworks
Administrative oversight mechanisms
Grievance redressal systems

This silence on tax matters actually strengthens the argument for Section 96 application, as it demonstrates that without LAAR Act benefits, railway project-affected persons would receive inferior treatment compared to direct LAAR Act beneficiaries.

IV. The Girnar Traders Doctrine: Selective Incorporation Framework

Supreme Court’s Incorporation Principles

The Supreme Court’s landmark decision in Girnar Traders (3) v. State of Maharashtra (2011) 3 SCC 1 established fundamental principles for determining when provisions of general acquisition laws are incorporated into specialized statutes.

The Court held that the MRTP Act incorporates Land Acquisition Act provisions:

“limited to the extent of acquisition of land, payment of compensation and recourse to legal remedies while excluding procedural time limits that would frustrate the specialized scheme.”

Application to Railway Acquisitions

The Girnar Traders doctrine applies with enhanced force to railway acquisitions because:

Express Legislative Recognition: The 2015 notification explicitly extends LAAR Act benefits to Fourth Schedule enactments
Constitutional Necessity: Equal protection demands uniform treatment of landowners facing compulsory acquisition
Policy Coherence: Infrastructure development cannot justify discriminatory taxation

The recent Supreme Court decision in Nirmiti Developers v. State of Maharashtra (2025) reinforces these principles, emphasizing that:

“property rights are now considered to be not only a constitutional right but also a human right.”

V. Section 194LA and TDS Implications: The 2017 Amendment

Legislative Clarification on TDS Exemption

The Finance Act, 2017 amended Section 194LA to include a specific proviso:

“Provided further that no deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.”

This amendment followed conflicting High Court decisions and represents legislative clarification that Section 96 exemptions override TDS requirements.

Current TDS Framework

Under the amended Section 194LA:

Standard TDS Rate: 10% on compensation exceeding ₹5 lakh (increased from ₹2.5 lakh)
Section 96 Exemption: Complete TDS exemption for awards covered by Section 96
Railway Applications: Railway compensation qualifies for TDS exemption through 2015 notification extension

VI. Judicial Precedents: Strengthening the Foundation

Chhattisgarh High Court: Direct Precedent

The Chhattisgarh High Court in Sanjay Kumar Baid v. ITO directly addressed Section 96 application to Fourth Schedule enactments, specifically the National Highways Act, 1956. The Court held:

“The denial of the benefit of Section 96 would defeat the legislative intention and would be discriminatory and violative of Article 14 of the Constitution.”

This precedent directly supports railway acquisition tax exemption, as both the National Highways Act and Railways Act occupy identical positions in the Fourth Schedule.

Supreme Court: Emphasis on Uniform Treatment

Recent Supreme Court decisions consistently emphasize uniform treatment principles:

Union of India v. Tarsem Singh: Stressed equal compensation treatment across acquisition frameworks
NHAI v. P. Nagaraju: Reinforced non-discriminatory application of beneficial provisions

These precedents create strong jurisprudential foundation for Section 96 application to railway acquisitions.

VII. Constitutional and Policy Analysis

Article 14: Equal Protection Imperative

The constitutional analysis reveals multiple layers supporting Section 96 application:

Formal Equality: Both railway and direct LAAR Act acquisitions involve identical governmental taking of private property for public purposes

Substantive Equality: The involuntary nature and public benefit character remain constant regardless of procedural statute

Remedial Equality: Tax exemption serves identical purposes—ensuring full compensation without fiscal erosion

Article 300A: Property Rights Protection

The Supreme Court’s recognition of property as a fundamental human right in recent decisions elevates the importance of complete compensation. Tax exemption becomes not merely a policy choice but a constitutional imperative ensuring meaningful property protection.

Policy Coherence in Infrastructure Development

India’s infrastructure development strategy requires consistent legal frameworks across sectors. Railway expansion, highway construction, and port development all serve similar national objectives and should receive uniform tax treatment.

VIII. Practical Application Framework

For Railway Acquisitions

Section 96 exemption applies in these scenarios:

Direct Chapter IVA Acquisitions: Land acquired through Sections 20E-20F procedures qualifies for exemption based on 2015 notification extension
Hybrid LAAR Act Procedures: Where railways utilize direct LAAR Act procedures, Section 96 applies automatically
Special Railway Projects: All notified Special Railway Projects under Section 37A receive exemption benefits

For Other Fourth Schedule Enactments

The analysis extends to all thirteen Fourth Schedule enactments, each receiving identical Section 96 benefits through the 2015 notification, including:

Coal Bearing Areas (Acquisition and Development) Act, 1957
Atomic Energy Act, 1962
National Highways Act, 1956
Metro Railways (Construction of Works) Act, 1978
Major Port Trusts Act, 1963
And eight other specialized acquisition statutes

IX. Counter-Arguments and Responses

Restrictive Construction Argument

Counter-Position: Section 96 applies only to “awards made under this Act” meaning the LAAR Act directly, excluding specialized statute awards.

Response: This interpretation ignores:

The comprehensive 2015 notification extending all LAAR Act benefits
The Girnar Traders incorporation doctrine
Constitutional equal protection requirements
CBDT administrative recognition of broader application

Procedural Distinction Argument

Counter-Position: Different procedural frameworks justify different tax treatment.

Response: The Chhattisgarh High Court in Sanjay Kumar Baid explicitly rejected this approach, holding that the underlying nature of acquisition—compulsory taking for public purpose—determines tax treatment, not the specific procedural statute.

X. Recommendations and Future Implications

For Legal Practitioners

Landowner Representation: Develop comprehensive argumentation combining the 2015 notification, constitutional principles, and supporting precedents.

Government Counsel: Proactively apply Section 96 exemption to avoid litigation costs exceeding revenue benefits.

Corporate Legal Teams: Structure infrastructure acquisitions with full awareness of tax exemption availability.

For Policy Development

Legislative Clarification: Consider explicit amendment to Section 96 listing Fourth Schedule applicability to prevent future disputes.

Administrative Guidelines: Develop comprehensive implementation guidelines for acquiring authorities.

Judicial Training: Ensure consistent interpretation across High Courts through judicial education programs.

Conclusion: Toward Unified Infrastructure Acquisition Taxation

The application of Section 96 to railway acquisitions and other Fourth Schedule enactments represents more than technical legal interpretation—it reflects fundamental principles of constitutional equality, policy coherence, and infrastructure development strategy. The Central Government’s 2015 notification, combined with established incorporation doctrines from Girnar Traders and constitutional imperatives under Articles 14 and 300A, creates compelling legal foundation for comprehensive tax exemption application.

The CBDT’s administrative recognition through Circular 36/2016, the 2017 Section 194LA amendment, and supportive High Court precedents demonstrate convergent legal authorities supporting broad Section 96 application. As India’s infrastructure development accelerates, uniform tax treatment across acquisition modalities becomes essential for both constitutional compliance and sound public policy.

The legal framework supports this uniformity, ensuring that landowners receive fair compensation without discriminatory fiscal burdens, regardless of whether their land is acquired for railways, highways, ports, or other infrastructure projects. The path forward requires recognition that Section 96’s tax exemption serves the broader constitutional purpose of ensuring fair compensation for involuntary property surrender, making it applicable across all Fourth Schedule enactments through the comprehensive framework established by the 2015 notification and supporting jurisprudence.

About Bhatt & Joshi Associates: Leading legal consultancy specializing in land acquisition, infrastructure law, and constitutional litigation, providing comprehensive legal services across India’s major commercial centers.

References:

Central Government Notification S.O. 2368(E) dated August 28, 2015;
Girnar Traders (3) v. State of Maharashtra, (2011) 3 SCC 1;
CBDT Circular No. 36/2016 dated October 25, 2016;
Sanjay Kumar Baid v. ITO (Chhattisgarh High Court, 2025);
Railways Act, 1989;
LAAR Act, 2013;