Union Budget 2026–27: Motor accident compensation interest exempt from tax

Finance Minister Nirmala Sitharaman announced in the Union Budget 2026–27 that interest on compensation awarded by the Motor Accident Claims Tribunal (MACT) will be tax-free and exempt from TDS, effective from April 1, 2026, to ease hardship for victims and families.

New Delhi: Finance Minister Nirmala Sitaraman on Sunday proposed a tax exemption on awards given by the Motor Accident Claims Tribunal in the Union Budget 2026-27.

According to the Budget document, the provisions of the Motor Vehicles Act, 1988, inter alia, provide for compensation and an interest on the compensation to be awarded by the tribunal to an individual or his/her legal heir, on account of death or permanent disability or any bodily injury under the said Act.

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“In order to alleviate the sufferings of victims of such an accident and their families, which may cause extreme hardship to the aggrieved person and family, it is proposed to amend the said Schedule to provide an exemption to an individual or his legal heir, on any income in the nature of interest under the Motor Vehicles Act, 1988,” it said

The document said these amendments will take effect from April 1, 2026, and shall accordingly apply in relation to the tax year 2026-27 and subsequent tax years.

It also said that no tax is to be deducted at source in respect of interest on 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 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.

The amendment will take effect from April 1, 2026.