No Income Tax On Interest From Motor Accident Compensation : Finance Minister In Union Budget 2026

Union Finance Minister Nirmala Sitharaman, in the Budget speech, announced the proposal to exempt interest accrued on motor accident compensation from Income Tax Act. As a result, there will be no TDS deduction on the interest awarded for motor accident compensation.

"Any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax and any TDS on the account will be done away with," Sitharaman said.

It may be noted that the issue whether Tax Deduction at Source is applicable on interest awarded for MACT compensation is pending before the Supreme Court.

In 2024, the Supreme Court sought the views of the Union and Income Tax Department on the applicability of Tax Deduction at Source (TDS) on the interest liability over and above Rs. 50,000 compensation awarded in Motor Accident Claims.

In 2022, the Court had asked the Centre to examine the issue of money deduced from motor accident compensation awards as Tax Deducted at Source (TDS) lying as unclaimed refunds with respect to claimants who may not come within the bracket of Income Tax assesses.

The Bombay High Court in Rupesh Rashmikant Shah v. UOI held that interest awarded in the motor accident claim from the date of the Claim Petition till the passing of the award or appeal, would not be eligible to tax, not being an income.

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