01 February,2026 05:50 PM IST | Mumbai | mid-day online correspondent
FM Nirmala Sitharaman presents the Union Budget in Lok Sabha on Sunday. PIC/PTI
Union Finance Minister Nirmala Sitharaman highlighted a major relief initiative for road accident victims and their families in the Union Budget 2026.
While addressing the Lok Sabha on Sunday, Sitharaman announced that the interest accrued on motor accident compensation claims will be fully exempt from income tax, news agency IANS reported.
The proposal is aimed at ensuring that accident victims receive the complete amount of their claim without any deductions. The move will also eliminate Tax Deducted at Source (TDS) on such interest payments.
The announcement came as part of broader tax relief initiatives in the Budget, presented by Sitharaman for the ninth consecutive time.
Under current provisions, interest components awarded by the Motor Accident Claims Tribunals (MACT), often substantial due to delays in claim settlements, are treated as taxable income under the Income Tax Act.
This has resulted in victims or their dependents losing a portion of the compensation to tax liabilities, sometimes forcing them to navigate complex refund processes or face reduced financial support for medical care, rehabilitation, and livelihood restoration.
The Finance Minister emphasised that the exemption applies specifically to interest awarded to a "natural person (individual claimants)," recognising the compensatory and humanitarian nature 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," she further highlighted.
The change is expected to come into effect from the financial year 2026-27, providing immediate relief in ongoing and future cases.
Road accidents remain a major public health and economic challenge in India, with thousands of fatalities and injuries annually leading to prolonged legal battles for compensation.
The delays in tribunal awards often inflate the interest component, intended to compensate for the time value of money and suffering endured. By removing the tax burden, the government aims to make the compensation more meaningful and victim-centric, aligning with efforts to improve ease of living and support vulnerable sections.
The proposal has been welcomed by legal experts, victim rights groups, and insurance stakeholders, who argue that it addresses a long-standing inequity.
Further, the move also prevents erosion of awards meant for rehabilitation and could encourage faster claim resolutions.
The full exemption is poised to benefit lakhs of affected families, ensuring that justice in motor accident cases is not diminished by fiscal deductions.
(With inputs from IANS)
