Interest awarded by MACT will be exempted from Income Tax: FM [Read Finance Bill 2026]

The Union Budget for the Financial Year 2026–27 was presented by Finance Minister Nirmala Sitharaman in the Lok Sabha today (Sunday, 1 February 2026), with the Government announcing that interest awarded by Motor Accident Claims Tribunals (MACT) to natural persons will be fully exempt from income tax.

The Finance Minister said that Tax Deducted at Source (TDS) on such interest payments will also be abolished, ensuring that accident victims and their families receive the full amount awarded without any tax-related deductions.

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The move is aimed at improving ease of living and reducing financial hardship for individuals who receive compensation following motor accidents. Interest awarded by MACT is compensatory in nature and is intended to provide relief for medical expenses, loss of income and rehabilitation.

At present, MACT interest is treated as taxable income, often resulting in TDS deductions and subsequent refund claims, creating compliance challenges for claimants. The proposed exemption is expected to eliminate these hassles and reduce litigation.

The measure is part of the Government’s broader direct tax reforms announced in Budget 2026, including the rollout of the new Income Tax Act, 2025, which will come into effect from April 1, 2026, with simplified rules and redesigned tax forms.

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