Tds on on interest component of compensation awarded

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M S UMESH (Querist)
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27 February 2017 What is the difference between Sec.194a(3)(ix) and Sec.194a(3)(ixa) of Income Tax Act.

I was awarded under the Motor Vehicles Act, a compensation of Rs.13,50,000/- in the year 2011, along with interest at 6% pa calculated from date of filing the petition till the date of deposit, by Motor Accident Claims Tribunal. Insurance Company appealed against the award but was confirmed by High Court. Finally, Insurance Company deposited the sum of Rs.Rs.13,50,000/- in Nov., 2016, along with interest of Rs.3,50,000/- after deducting tax of about Rs.1,60,000/-.

Is TDS by Insurance Company justifiable.

Sec.194a(3)(ix) states that Sec.194A (1) shall not be applicablen
(1) to such income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal;
(2) to such income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount
of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty
thousand rupees;

How to harmoniously intrepret Sec.194a(3)(ix) states that Sec.194A (1).

Please clarify.

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M S UMESH

M S UMESH (Querist)
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03 March 2017 Is this question very complex? No expert to clarify on this?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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27 July 2025 Great question! This is a nuanced area of TDS under the Income Tax Act relating to interest on compensation awarded by tribunals like Motor Accident Claims Tribunal (MACT).

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### Section 194A(1) – General Rule for TDS on Interest Income

* Section 194A(1) mandates deduction of TDS at 10% on interest income paid by banks, post offices, or any person responsible for paying interest (other than interest on securities).

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### Section 194A(3)(ix) and 194A(3)(ixa) – Specific Exemptions Related to Interest on Compensation

* **Section 194A(3)(ix)**:
This clause **exempts from TDS the interest income credited on compensation amounts awarded by the Motor Accidents Claims Tribunal (MACT)**, **provided the total interest paid during the financial year does not exceed Rs. 50,000**.

So, if the interest component paid on MACT compensation is **up to Rs. 50,000 in a year**, **no TDS is to be deducted** under section 194A(1).

* **Section 194A(3)(ixa)**:
This provision is a bit more specific and came as an amendment to clarify or cover other tribunals or compensation cases (including courts other than MACT). The exact language varies by year, but it generally excludes from TDS the interest on compensation awarded by tribunals or courts, similar to 3(ix), possibly with or without the Rs. 50,000 threshold.

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### Your Scenario: Compensation Award + Interest Paid after Several Years

* The Insurance Company paid you compensation plus interest on delayed payment (6% p.a.).
* They **deducted TDS on the interest portion** amounting to approx Rs. 1,60,000.
* However, per **Section 194A(3)(ix)**:

* If the interest income paid on MACT compensation **does not exceed Rs. 50,000 in aggregate for the financial year, TDS should NOT be deducted**.
* If it **exceeds Rs. 50,000**, TDS **can be deducted on the entire interest amount**.
* Since the interest is Rs. 3,50,000 (which is > Rs. 50,000), **TDS deduction by Insurance Company is justified**.

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### Harmonious Interpretation

* The exemption in 194A(3)(ix) is a **relief for small amounts of interest income** on such compensation.
* For interest exceeding Rs. 50,000 per year, TDS applies as usual.
* Section 194A(3)(ixa) extends or clarifies the exemption for other types of compensations, but the Rs. 50,000 limit still generally applies.

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### Summary:

| Situation | TDS on Interest on Compensation |
| --------------------------------------------- | ------------------------------------------------------ |
| Interest on MACT compensation ≤ Rs. 50,000 | **No TDS deduction** (Exempted) |
| Interest on MACT compensation > Rs. 50,000 | **TDS applicable at 10%** |
| Interest on compensation from other tribunals | Refer to Sec 194A(3)(ixa), usually similar rules apply |

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If you want, I can help you draft a letter or query to the Insurance Company or suggest next steps if you believe TDS is wrongly deducted.

Does this clear it up? Would you like me to break down the legal text further?

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