No TDS on Motor Accident Interest From April 2026

Overview

Starting 1st April 2026, insurance companies and tribunals will not deduct TDS on interest paid along with motor accident compensation.

Earlier, many victims received reduced compensation amounts due to automatic TDS deduction on interest.

Now, the entire compensation + interest reaches the claimant without tax cuts.

The Budget 2026 has exempted any TDS (Tax Deducted at source) arising from the interest on the compensation awarded to the insured taxpayers by the Motor Accident Claims Tribunal, which was earlier viewed as 'income for other sources' under Section 194A.

Before and after effects

Who benefits from this?

• Accident victims
• Families of deceased victims
• Senior citizens & dependents
• Low-income claimants
• Legal heirs receiving delayed compensation

This amendment ensures justice, dignity, and financial ease.

Government’s Intent

Government's contention and intent is to provide financial relief for the victims. Since compensation is not income and shall be given fully without any Deduction from compensation.

And the compensation so received shall be tax free.

How does this benefit the Insured?

This speeds up the process of settlement of accidents claims. Prior to this announcement the process was delayed due to TDS deductions and other statutory obligations. 

FAQs

Is TDS applicable on motor accident interest after April 2026?

No. TDS will not be deducted on interest received from motor accident compensation.

Does this apply to pending MACT cases?

Yes. If payment is made on or after 1st April 2026, the exemption applies.

Is the principal compensation amount taxable?

No. Motor accident compensation is fully exempt from tax.

Will insurance companies stop deducting TDS?

Yes. Insurance companies must comply with the new exemption rule.

Do I need to show this income in ITR?

In most genuine accident compensation cases, no tax disclosure is required.