Tax policy on interest payment by developer as compensation


I had booked office space in 2009 and the handing over of project was delayed by 6 years.Developer has offered possession of it in 2017 and agreed to pay compensation.The developer has deducted 10% TDS on interest paid.Kindly clarify if interest payment by developer as compensation is taxable under IT.


Answers (1)

Usually, compensation doesn’t attract tax because it is only ‘capital receipt’. But ‘interest’ will attract tax, as it makes good the loss a person incurs. The Supreme Court recent order uses the word ‘interest’, it is likely home buyers will be liable to pay tax on the interest amount. The original amount paid for the flat will not be liable for tax,”.
The builder will deduct tax at source (TDS) at 10 per cent, but if a home buyer is in a higher tax bracket, he or she will have to show the interest payment received under other income and pay tax according to the tax slab.


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