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Tax Treatment for Compensation received from court

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Navateja

21 Points Posted on 16 September 2020

can anyone tell me what is the Tax Treatment for sum received from court as a compensation for MOTOR CYCLE ACCIDENT ????

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Quick Summary

The tax treatment of compensation received for a motorcycle accident depends on whether the accident resulted in a disability. If a permanent disability occurs, the compensation is generally considered a capital receipt and not taxable, as it replaces lost income. For temporary disabilities, only the portion exceeding the actual loss of income may be taxable. If there's no disability, the entire compensation amount is usually taxable, and any interest received on the compensation is also taxable as income.

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140 Points Posted on 16 September 2020

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.