Govt Scraps Tax on Motor Accident Compensation
Under the existing norms, the principal compensation amount was treated as a capital receipt, effectively making the interest earned on it taxable
Mumbai: Motor accident victims and their families will now receive full compensation due to them, without any tax deductions, said finance minister Nirmala Sitharaman in the Union Budget 2026.
In a major customer centric move, starting April 1, 2026, any compensation and interest awarded by the Motor Accidents Claims Tribunals (MACT) to an individual or their legal heirs, whether due to death, permanent disability, or bodily injury, will be entirely exempt from income tax and Tax Deducted at Source (TDS) on interest.
Under the existing norms, the principal compensation amount was treated as a capital receipt, effectively making the interest earned on it taxable. Claimants then have to seek refunds if their income falls below the taxable threshold.
The proposed amendment to Sections 11 and 56 of the Income Tax Act, 2025, changes this by exempting compensation and interest income in its entirety which will ensure that the full value of the tribunal's award reaches the beneficiary without getting reduced due to tax liabilities.