Union Finance Minister Nirmala Sitharaman, during the Union Budget 2026–27 presentation in Parliament, announced that any interest awarded by the Motor Accident Claims Tribunal (MACT) to a natural person will be exempt from income tax. While presenting the Budget, the Finance Minister said that the government’s focus is on making the income tax system simpler and more citizen-friendly.
As part of this effort, she announced that any tax deducted at source (TDS) on interest awarded by the Motor Accident Claims Tribunal to a natural person will be done away with.
“Any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax and any TDS from this account will be done away with,” Sitharaman said.
Interest on Motor Accident Compensation to get tax exemption
According to the Budget document, the provisions of the Motor Vehicles Act, 1988 provide for compensation, along with interest on such compensation, to be awarded by a tribunal to an individual or his or her legal heir in cases of death, permanent disability, or bodily injury arising from a motor accident.
Relief for accident victims and their families
To alleviate the suffering of accident victims and their families—who often face extreme hardship—it has been proposed to amend the relevant Schedule to grant an exemption to an individual or their legal heir on income in the nature of interest received under the Motor Vehicles Act, 1988.
The document stated that this move is aimed at reducing the financial burden on affected individuals and providing meaningful relief to those impacted by such accidents.
No TDS on interest awarded by claims tribunal
The Budget document further clarified that no tax shall be deducted at source (TDS) on the interest component of the compensation amount awarded by a Motor Accidents Claims Tribunal to an individual.
“In order to provide relief to the individual and to alleviate the hardship caused due to an accident, it is proposed that no tax shall be deducted at source in respect of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal to an individual,” the document said.
Effective date of the amendment
These proposed amendments will come into effect from April 1, 2026, and will apply to the tax year 2026–27 and all subsequent tax years.
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