According to the Union Budget, in order to alleviate the suffering of victims of motor vehicle accidents and their families, it is proposed that any interest awarded on compensation by MACT to a natural person will be exempt from income tax.
The Budget also proposes that, in the case of individuals, no tax shall be deducted at source (TDS) on such interest, irrespective of the amount awarded.
The amendment will come into effect from April 1, 2026.
Manoj Purohit, partner - financial services tax, tax & regulatory advisory, BDO India, said, “There has been ambiguity on the applicability of TDS and its taxability in the hands of the recipient on the interest awarded by the Motor Accident Claims Tribunal (MACT), considering the compensation amount being paid under a court or tribunal order.”
“The Budget 2026 proposal to not tax such amounts as income will settle the long-standing ambiguity, thereby reducing litigation for insurance companies arising from TDS implications and also for recipients while filing their returns of income. This move will also ensure faster settlement of claims by insurance companies,” Purohit added.
According to provisions, tax is not required to be deducted in respect of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal, if the amount or the aggregate of the amounts of such income does not exceed ₹50,000 during the tax year, said the memorandum of the Budget.
Parthanil Ghosh, executive director, HDFC ERGO General Insurance, said, “The exemption of interest on MACT awards from income tax and TDS is a significant step towards building a citizen-centric insurance ecosystem. It would encourage wider adoption of motor cover and ensure that accident victims receive full financial support when they need it most.”
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