Finance Minister Nirmala Sitharaman took the podium to present the Union Budget for 2026-27, unveiling a series of measures aimed at easing financial burdens and supporting citizens. Among the key announcements, she proposed that any interest awarded by the Motor Accident Claims Tribunal to a natural person will be fully exempt from income tax during the financial year 2026-27.
In a significant relief for claimants, the Minister further declared that tax deducted at source (TDS) on such interest will be abolished, ensuring beneficiaries receive their compensation in full without deductions. This move is expected to provide greater financial security to accident victims and streamline the disbursement process, reflecting the government's commitment to citizen welfare and justice.
According to reports, the long-standing debate on whether Tax Deduction at Source (TDS) applies to interest awarded in Motor Accident Claims Tribunal (MACT) cases has been under judicial scrutiny for years. Back in 2022, the Supreme Court asked the Centre to examine concerns over accident compensation amounts being deducted as TDS and later lying unclaimed as refunds, particularly for victims who were not income tax assessees.
Two years later, in 2024, the Court sought detailed views from the Union government and the Income Tax Department on whether TDS should apply to interest liabilities exceeding Rs 50,000 in compensation awards. The matter remains pending before the apex court, highlighting the complexity of balancing tax rules with victim welfare.
Against this backdrop, the Union Budget 2026 announcement by Finance Minister Nirmala Sitharaman-exempting such interest from income tax and abolishing TDS altogether-marks a decisive policy intervention. The move is expected to ensure that beneficiaries receive their compensation in full, without procedural hurdles, and signals the government's intent to align fiscal policy with social justice.
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