# Interest on Compensation / Enhanced Compensation — Section 56(2)(viii) & 57(iv)

## When Taxable

Taxable in the year of receipt (regardless of accrual).
Common in cases of compulsory acquisition of land where the assessee receives interest on delayed compensation.

## Computation of Income

Particulars	Amount
Interest on compensation / enhanced compensation received	XX
(−) Standard deduction of 50%	(XX)
Income from Other Sources	XX

## Key Points

1. The deduction is a flat 50% of the interest received (Section 57(iv)).

2. No other expenses (legal fees, etc.) are deductible.

3. The compensation itself is taxed under Capital Gains; only the interest portion comes under IFOS.

⚠️ Common exam mistakes

Spreading the interest over multiple years on accrual basis — must be taxed in year of receipt.
Claiming actual legal expenses in addition to / instead of the 50% deduction.
Confusing compensation (Capital Gains) with interest on compensation (IFOS).

Bare-Act text Sections 56(2)(viii) and 57(iv) · Income Tax Act, 1961 · click to expand

Section 56(2)(viii) — Interest received on compensation or enhanced compensation referred to in section 145B(1) shall be taxable under IFOS in year of receipt. Section 57(iv) — A deduction of a sum equal to 50% of such income shall be allowed; no other deduction is permissible.

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Interest on Compensation / Enhanced Compensation

Worked example

⚠️ Common exam mistakes