New Delhi, Feb 1 (NationPress) In an important relief measure for those affected by road accidents and their families, Union Finance Minister Nirmala Sitharaman declared during the Union Budget presentation for 2026-27 on Sunday that the interest accrued on motor accident compensation claims will be entirely exempt from income tax.

This initiative is designed to ensure that victims receive the full compensation amount without any deductions and also abolishes Tax Deducted at Source (TDS) on these interest payments.

The announcement was part of broader tax relief measures included in the budget, which FM Sitharaman presented in Parliament for the ninth consecutive year.

Currently, the interest awarded by Motor Accident Claims Tribunals (MACT)—often significant due to delays in claims—is considered taxable income under the Income Tax Act. This has led to victims or their dependents losing a portion of their compensation to tax obligations, sometimes forcing them to endure complex refund processes or reduced financial aid for medical treatment, rehabilitation, and livelihood restoration.

The Finance Minister highlighted that the exemption specifically targets interest awarded to a “natural person” (individual claimants), acknowledging the compensatory and humanitarian essence of these awards.

"Any interest granted by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax, and any TDS on this matter will be abolished," FM Sitharaman stated in her budget address.

This adjustment is slated to take effect for the financial year 2026-27, providing immediate assistance in ongoing and future cases.

Road accidents continue to pose a significant public health and economic issue in India, resulting in thousands of deaths and injuries each year, which often lead to prolonged legal battles for compensation.

The delays in tribunal decisions frequently inflate the interest component, which is meant to compensate for the time value of money and the suffering endured. By relieving the tax burden, the government aims to enhance the significance of the compensation, making it more victim-centered, in line with efforts to improve living conditions and support vulnerable communities.

This initiative has been positively received by legal experts, victim advocacy groups, and insurance stakeholders, who believe it remedies a long-standing inequity.

It safeguards the integrity of awards intended for rehabilitation and could expedite the resolution of claims.

This proposal aligns with FM Sitharaman's commitment to simplifying compliance and offering targeted relief amid ongoing economic reforms, while the budget also prioritizes manufacturing, infrastructure, and fiscal consolidation with a projected capital expenditure increase to Rs 12.2 lakh crore.

The complete exemption is expected to benefit lakhs of affected families, ensuring that the pursuit of justice in motor accident cases is not undermined by fiscal deductions.