As per section 45(1A) any profit or gain arising from a receipt of insurance compensation in the form of money or any asset at any time during the previous year on account of damage or destruction of a capital asset shall be chargeable to tax under the head “Capital Gains” in the year of receipt of such money or other asset and shall be deemed to be the income of such person of the previous year in which such money or other asset was received.

The two qualifying conditions are

(a) the compensation should have been received because of damage or destruction of capital asset and

(b) the damage or destruction is as a result of circumstances mentioned below.

Damage or destruction of a capital asset due to –

1. Flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or
2. Riot or civil disturbance; or
3. Accidental fire or explosion; or
4. Action by an enemy or action taken in combating an enemy (whether with or without a declaration of war).

If damage or destruction of a capital asset occurs due to above circumstances, 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”.

Value of any money or the fair market value of other assets on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.

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