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V1195-25 2 July 2025 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por daños personales

Only moral damages are exempt from IRPF; lost profits are taxed as work income

The consultant asks about the taxation of a judicial indemnity including lost profits and moral damages. Hacienda responds that only moral damages are exempt, while lost profits must be taxed as work income.

The question raised

Taxation under Personal Income Tax (IRPF).

The DGT's ruling

The exemption under Article 7.d) of Law 35/2006 only applies to compensation for civil liability for personal damages (physical, psychological, or moral) determined by a court. Lost profits due to unpaid wages do not constitute personal damage and are taxed as income from employment pursuant to Article 17.1. This income is attributed to the period in which the judgment becomes final and may be subject to the 30% reduction for generation periods exceeding two years.

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