Budget 2026: FM Sitharaman announces full tax exemption on motor accident claim interest

New Delhi: Union Finance Minister Nirmala Sitharaman announced on Sunday during her Union Budget 2026-27 presentation that interest awarded on motor accident compensation claims will be fully exempt from income tax, providing major relief to victims and their families. The move also eliminates Tax Deducted at Source (TDS) on such interest payments, ensuring claimants receive the entire amount without deductions.

Previously, substantial interest components from delayed Motor Accident Claims Tribunal (MACT) awards were treated as taxable income, often eroding financial support for medical care, rehabilitation and livelihoods through tax liabilities or complex refund processes. The exemption applies specifically to natural persons (individual claimants), recognizing the humanitarian purpose of these awards. "Any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax, and any TDS on this account will be done away with," Sitharaman stated in Parliament during her ninth consecutive budget speech.

Effective for the financial year 2026-27, the change addresses a long-standing issue amid India's high road accident toll, where prolonged legal delays inflate interest meant to compensate for time and suffering. Legal experts, victim rights groups and insurers have welcomed the victim-centric reform, which could speed up claim resolutions while aligning with broader efforts to simplify compliance and support vulnerable groups alongside priorities like manufacturing and a Rs 12.2 lakh crore capex hike.

(Inputs from IANS)