Government proposes to exempt award given by Motor Accident Claims Tribunal from income tax

Finance Minister Nirmala Sitahraman on Sunday, February 1, 2026, proposed tax exemption for awards awarded by the Motor Accident Claims Tribunal in the Union Budget 2026-27.

According to the budget document, the provisions of the Motor Vehicles Act, 1988, inter alia, provide for compensation and interest on compensation to be awarded by the court to a person or his legal heir in respect of death or permanent disability or any other bodily injury under the said Act.

“For the purpose of alleviating the suffering of victims of such accidents and their families which may cause undue hardship to the aggrieved person and family, it is proposed to amend the said Schedule to provide exemption to a person or his legal heir from any income in the nature of interest under the Motor Vehicles Act, 1988.”

These changes will be effective from April 1, 2026, and will accordingly apply for the 2026-27 tax year and subsequent tax years, the document stated.

It also stated that no tax would be deducted at source in respect of interest on the amount of compensation awarded to an individual by the Motor Accident Claims Tribunal.

“In order to provide relief to the individual and alleviate the grievance caused by the accident, it has been suggested that no tax should be deducted at source as interest on the compensation amount awarded by the Motor Accidents Claims Tribunal to a person,” the document said. It was said.

The change will come into force from April 1, 2026.