Tax Treatment for Compensation received from court

The taxability of the amount depends if the accident has lead to any disability. Where there is a person becomes permanently disabled, the compensation would be considered as substituting the loss of his income and hence a capital receipt, thereby not chargeable to tax.If the disability is temporary for.e.g. if the person has been prescribed bed-rest for 20 days, the compensation will be not chargeable to tax based on the proportion of the disability i.e. loss of income for 20 days and the balance would be chargeable.If there is no disability, then compensation would be taxable.

Interest received on Compensation is taxable as income from other sources..