Budget 2026: Tax Exemption on Interest from Motor Accident Compensation 

In the Union Budget 2026, presented on February 1, 2026, the Finance Minister Nirmala Sitharaman announced a major relief for individuals under the Motor Vehicles Act, 1988. The government has proposed to exempt tax on the interest income on compensation given by the Motor Accidents Claims Tribunal (MACT) for death, injury, or property damage.

Section 393(4) of the Income Tax Act provides a TDS exemption on the interest on motor accident claims. Currently, when an individual receives interest on the compensation amount given by the Motor Accidents Claims Tribunal, TDS is not deducted if the interest is below the limit of Rs 50,000. So, if the interest received is more than this limit, TDS is required to be deducted.

To offer tax relief to the victims and reduce the difficulties caused by the accident, the government has proposed to offer TDS exemption towards the interest on the compensation amount awarded by the Motor Accidents Claims Tribunal to an individual.

This means that even if the interest exceeds the limit of Rs 50,000, the interest awarded by the MACT will not be taxable, and no TDS will be deducted.

The new changes will take effect from April 2026, for the tax year 2026-27 and subsequent tax years.