In the Union Budget 2026, the government announced that TDS (Tax Deducted at Source) will no longer be charged on interest paid on compensation awarded by insurance companies under orders of the Motor Accident Claims Tribunal (MACT).
Earlier, such interest was treated as “income from other sources” under Section 194A, and TDS was applicable on it.
Finance Minister Nirmala Sitharaman said in her budget speech on February 1 that natural persons will now be exempt from income tax on interest paid on compensation ordered by the MACT. She also clarified that no TDS will be deducted on such payments.
Why the Government Took This Decision
The government’s move comes at a time when road accidents are increasing in India. According to a government report, 26,770 people lost their lives in accidents on national highways in the first six months of 2025.
Motor Accident Claims Tribunals (MACTs) are quasi-judicial bodies set up under the Motor Vehicles Act, 1988.
Their role is to award compensation for damages caused by motor accidents, including cases of death and property loss. Every district has an Assessing Tribunal (AACT) to handle such claims.
Earlier Rules and Expert Opinion
Earlier, TDS was deducted if the compensation amount exceeded ₹50,000 under an order issued by the MACT.
Aditya Bhattacharya, partner at King Stubb & Kasiva, Advocates & Attorneys, explained that the tax rules on MACT interest created confusion.
Authorities treated the interest as “income from other sources,” even though it was essentially part of compensation.
