As per section 45(1A),

If any insurance claim received on destruction of asset then profit or gain arriving from it will be Charged under income from capital gains.

If no insurance claim received then not taxable


Destruction of capital assets and Insurance Compensation received - Special Cases


Destruction due to following causes are covered

    (a) National calamities like flood, earthquake etc.

    (b) Accidental fire or explosion

    (c) Riots or civil disturbance,

    (d) Action of enemy


         Action taken in fighting with the enemy





The period of holding and indexation  is calculated till the destruction of assets,

however it is taxable when insurance claim received.



If Stock Insurance and on loss of stock insurance compensation received then this section not applicable as capital asset does not include stock in trade.


asset destroyed.png


Question 1

Suppose Person had Purchased Building for Rs 15 lacs on 10/05/2010.On 15 June 2014,it got damaged due to fire.Insurance Compensation was received on 10 April 2015 of Rs 20 lacs

Indexation Rate for 2010-11,2014-15 and 2015-16 are 711,1024 and 1081


Capital Gain is taxable in year Compensation Received i.e. 2015-16

However,Period of Holding will be calculated from 10/05/2010 till 15 June 2014

Since it is used for more than 36 months i.e. it is a long term Capital asset



FVC=Insurance Compensation Received=2000000


Short Term Capital Loss=160338


 Q2 Solve Q1 assuming it is used for Business as Office Building.It is the only building in block

View Answer


Solve Q1 assuming it is Stock in Trade which was damaged and not building?

View Answer
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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.