Capital Asset Destroyed — Insurance Receipt [Section 45(1A)]
## Capital Asset Destroyed — Insurance Claim [Section 45(1A)]
When a capital asset is destroyed due to a specified event (flood, fire, riot, earthquake, accident, war, etc.) and the assessee receives money or other asset from an insurance company, special timing rules apply.
### Treatment
Element
Rule
Sale Consideration
Amount received from insurance + FMV of any other asset received
Year of Transfer
Year of destruction
Year of Taxability
Year in which insurance claim is received (NOT year of destruction)
If no claim is received
No capital gain arises; the loss is a dead loss (not allowed as capital loss)
### Why the lag?
Insurance claims often take 1–2 years to settle. The law fixes the transfer year as the destruction year (which determines STCG/LTCG and indexation base year) but defers taxation to the year of receipt (to match payment of tax with availability of funds).
Worked example
### Example 1
Example: Mr. A's factory building (cost ₹50 lakh, held since 2010) destroyed by fire on 15.6.2024. Insurance claim ₹80 lakh received on 10.5.2025.
Year of transfer = FY 2024-25 (destruction year).
Year of taxability = FY 2025-26 (receipt year).
Capital Gain = ₹80 lakh − ₹50 lakh = ₹30 lakh (taxed in AY 2026-27).
⚠️ Common exam mistakes
Taxing the gain in the year of destruction instead of the year of receipt.
Claiming a capital loss when insurance claim is denied — it is a dead loss, not deductible.
Forgetting to include FMV of replacement assets (if any) in sale consideration.
Bare-Act text Section 45(1A) · Income-tax Act, 1961 · click to expand
Notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of— (i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; (ii) riot or civil disturbance; (iii) accidental fire or explosion; or (iv) action by an enemy or action taken in combating an enemy, then, any profits or gains arising from receipt of such money or other assets shall be chargeable to income-tax under the head 'Capital gains' and shall be deemed to be the income of the previous year in which such money or other asset was received.