Breaking: Interest On Motor Accident Compensation To Be Tax-Free Under Budget Proposal

Interest received on compensation awarded by Motor Accident Claims Tribunals may soon be taken out of the income-tax net.

While presenting the Union Budget 2026–27, Finance Minister Nirmala Sitharaman announced a proposal to exempt such interest from tax and remove the requirement of tax deduction at source.

“I propose that 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 told Parliament during her speech on direct tax proposals.

The announcement formed part of a broader set of changes accompanying the new Income Tax Act, 2025, which is scheduled to come into force from April 1, 2026. The Finance Minister recalled that a comprehensive review of the Income Tax Act, 1961 was announced in July 2024 and completed within a year.

According to the speech, simplified income-tax rules and redesigned forms will be notified shortly, giving taxpayers time to familiarize themselves with the new framework. Sitharaman said the forms have been structured so that “ordinary citizens can comply without difficulty”