FM Sitharaman proposes exempting interest on Motor Accident Compensation from income tax

Union Budget 2026 has proposed exempting interest awarded by Motor Accident Claims Tribunals (MACT) to a natural person from income tax for the financial year 2026-27.

Finance Minister Nirmala Sitharaman presented the Union Budget 2026 in Parliament on Sunday, February 1. The FM announced the exemption for interest awarded by Motor Accident Claims Tribunals, adding that any Tax deducted at source (TDS) on this account will also be removed.

"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," the FM said in her speech.

What will change?

The proposal aims to remove the tax that was earlier levied on the interest received by victims of motor vehicle accidents from the MACT. Now, the tax on interest and TDS for such interest will not be charged.

"In order to alleviate the suffering of victims of motor vehicle accidents and their families, it is proposed that any interest awarded on the compensation amount in the case of an individual, any interest awarded by MACT shall be exempt," the Budget speech said.

"It is also proposed that in the case of an individual, no tax shall be deducted at source for such interest, irrespective of the amount of interest awarded by MACT," it added.

Currently, no tax is deducted at source on interest on the compensation if the amount is below ₹50,000 during the tax year, as per the provisions of Section 393(4). Now, to provide relief to the victims of the accident, it is proposed that no tax shall be deducted at source in respect of the interest on the compensation awarded by the MACT.

“Union Budget 2026 takes a people-first step by exempting interest awarded by Motor Accident Claims Tribunals from income tax. This ensures accident victims receive their full compensation without erosion through TDS," said Saurabh Vijayvergia, Founder & CEO, CoverSure.

He added, "This intent carries forward into the Budget’s broader focus on strengthening the financial sector and positioning AI as a growth multiplier, signalling a move towards a more transparent, efficient, and consumer-protective ecosystem. For customer-backed, AI-led insurtechs like CoverSure, this creates the right environment to simplify claims, reduce friction, and restore trust in insurance as a true safety net.”