Exemption from income tax on interest awarded by the Motor Accident Claims Tribunal to a natural person in Budget 2026

Union Budget 2026 has proposed that any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax for the financial year 2026-2027.

The Finance Minister further proposed that no tax shall be deducted at source on any interest amount awarded by the MACT, if such interest is credited or paid to an individual.

The exemption of interest on Motor Accident Claims Tribunal awards from income tax and TDS is a significant step towards building a citizen-centric insurance ecosystem, encouraging wider adoption of motor cover and ensuring that accident victims receive full financial support when they need it most, says Parthanil Ghosh, Executive Director, HDFC ERGO General Insurance.


A humane, litigation reducing approach to victim compensation was long overdue. Exemption of interest awarded by Motor Accident Claims Tribunals from income tax will ensure higher in-hand payouts to the families of accident victims and help the industry settle claims faster and seamlessly, says Parimal Heda, Chief Investment Officer, Go Digit General Insurance.

Instead of looking for headlines, this Budget focuses on staying the course and keeping the economy on a steady path. By removing TDS on Motor Accident Claims Tribunal (MACT) interest, the government has provided direct, compassionate relief to accident victims, a move that humanizes our financial regulations. While we await further movement on GST rationalization for health premiums, the Budget's massive push for Regional Medical Hubs and caregiver training provides the infrastructure needed to control medical inflation from the supply side, says Rakesh Goyal, Director, Probus.

Ms. Shanai Ghosh, MD and CEO of Zuno General Insurance comments that;

"In the context of Insurance, one of the most impactful consumer-centric announcements in Budget 2026 is the exemption of tax and TDS on interest awarded by Motor Accident Claims Tribunals. This move ensures that accident victims and their families receive the full compensation due to them, without any deductions, at a time when financial support is most critical."

No TDS on MACT compensation interest

According to the Budget 2026 Memorandum, no tax to be deducted at source in respect of interest on compensation amount awarded by Motor Accidents Claims Tribunal to an individual.

As per the provisions of section 393(4) [Table: Sl. No. 7, Column C (c)(iv)] of the Act, tax is not required to be deducted in respect of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal, if the amount or the aggregate of the amounts of such income does not exceed Rs 50,000 during the tax year.

In order to provide relief to the individual and to alleviate the hardship caused due to accident, it is proposed that no tax shall be deducted at source in respect of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal to an individual. The amendment will take effect from the 1st day of April, 2026.

FAQs: Budget-2026

Q.1 What amendment has been proposed in the Income-tax Act, 2025 in connection with the provisions of the Motor Vehicle Act, 1988?

Ans: A new provision has been inserted to exempt any income in the nature of interest awarded under the Motor Vehicle Act, 1988 to an individual or his legal heir.

Q.2 Who would be eligible to claim such exemption?

Ans: An individual or his legal heir would be the eligible person.

Q.3 What are the applicable conditions for availing such exemption?

Ans: The only requirement under the proposed provision is that such interest income is awarded by Motor vehicle Claims Tribunal under the Motor Vehicles Act, 1988 by an individual.

Q.4 Does the proposed amendment cover the amount of interest awarded by the Motor Vehicle Claims Tribunal?

Ans. Yes, the proposed provision covers interest awarded by the Motor Vehicle Claims Tribunal.

Q.5 Will the compensation be also exempted if it is awarded to a non-individual under the Motor Vehicle Act 1988?

Ans: No, the proposed provision of exemption is applicable to an individual and his legal heir.

Q.6 What are the TDS provisions consequent to such changes?

Ans: The provision of TDS shall not apply on such income. The appropriate amendment in this regard has also been proposed.