The government has removed both income tax and TDS on interest awarded in motor accident compensation cases, giving victims and families full relief
Finance Minister
Nirmala Sitharaman announced in the Union Budget that the government will exempt from income tax the interest awarded to individuals by Motor Accident Claims Tribunals (MACT), and authorities will no longer deduct TDS on such payments, a move aimed at easing financial stress for road accident victims and their families who often depend on compensation for medical care, rehabilitation and livelihood support.
According to the Budget 2026 Memorandum, no tax will be deducted at source on the interest paid to an individual on compensation awarded by the Motor Accidents Claims Tribunal.
Under the current provisions of section 393(4) [Table: Sl. No. 7, Column C (c)(iv)] of the Act, TDS is not required on such interest only if the amount, or the total of such amounts, does not exceed ₹50,000 in a tax year. To provide greater relief and reduce the hardship faced by accident victims, the proposal states that no tax shall be deducted at source on the interest portion of Motor Accidents Claims Tribunal compensation paid to an individual. The amendment will come into effect from April 1, 2026.
No change in slabs
Besides motor accident claims, Sitharaman did not announce any changes to income tax rates or slabs in Budget 2026.
She further noted that the new Income Tax Act will come into effect on April 1, 2026, now less than two months away. She then outlined key updates on its rollout, stating that the simplified Income Tax Rules and Forms will be notified soon and that the forms have been redesigned to ensure ordinary taxpayers can comply with ease.
Under the current new tax regime, income up to ₹4 lakh is exempt from tax, while earnings between ₹4 lakh and ₹8 lakh are taxed at 5 per cent. The 10 per cent slab applies to income from ₹8 lakh to ₹12 lakh, followed by 15 per cent for ₹12 lakh to ₹16 lakh, and 20 per cent for ₹16 lakh to ₹20 lakh. Income between ₹20 lakh and ₹24 lakh is taxed at 25 per cent, and any income above ₹24 lakh attracts a 30 per cent rate.
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