CA. M. Lakshmanan

Normally it takes several years for a person injured in an accident or for the legal heirs/Dependents of the deceased who had died in an accident to get compensation from the Insurance Companies which insured the vehicles that caused the accident through Motor Accident Claims Tribunal.

Though the compensation received is exempt, the interest paid for delayed settlement is taxable in the hands of the recipients. The claimants have already suffered a lot due the accident and had spent money due to hospitalisation in the case of injuries and in the case of deaths they would have suffered heavily due sudden loss of life of their near and dear and in some cases they would have lost their bread winner.

In many cases they would have even borrowed money for their expenses due to hospitalisation in addition to legal expenses and would have incurred expenditure in the form of interest also. The interest received is also a form of compensation for the sufferings and in such a situation to tax the same in the hands of the recipient in the year of receipt is in no way reasonable and to some extent it is inhuman also.

To collect tax from the sufferers on the interest and that too after a prolonged litigation should be stopped. Hence this interest should be exempt from tax. Now this interest is subject to TDS also if the same exceeds Rs. 50,000/- and in many cases since PAN is not obtained tax is deducted @ 20%. Naturally it is not claimed by the recipients.

In certain cases where the compensation is paid to more than one person and as such they receive the same jointly and while TDS made, the deduction is shown under one PAN and in such cases others are not able to get the benefit of credit for the TDS. Till such time the interest is exempted from Income Tax, the Government can think of at least releasing the interest from the clutches of TDS provisions.

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    As directed by Bombay High Court, – in the case of Mrs Gauri Deepak Patel & Ors Vs New India Assurance Co Ltd dated 17-12-2009 Bench S A Bobde , S J Kathawalla directs
    1. Tribunal to ensure the Interest amount to be apportioned on year to year basis.
    2. The Award Amount has to be splited as Principle amount and TDS Amount.- deposit before Tribunal.
    3. If on Cliamentwise – F Y wise bifurcation of the interest portion below 50,000/- the Tribunal may permit the Cliament to withdraw the amount.
    4. If it is above 50,000/-the Tribunal may permit the Insurance Company to pay over the TDS Amount to I T Dept. u/s 194 -A(3)(ix) in respect of that particular Cliament for the particular Year.

  2. Kanwaljit says:

    Thanks a Lot Sir !

    I was trying to reach someone having similar issues. I am having one client where they are deducting TDS on MACT cases. Is it possible to talk to you personally. My Contact No is 9876739911 Or do provide me with yours email ID or Contact No. I need to talk to you regarding the TDS to be deducted by the Tribunal.

  3. r.surender says:

    This is a very burning issue and involves unnecessary double work. The insurance companies are required to deduct tds and deposit it for income tax. However they do not have the pan particulars and deduct it at 20%.
    The solution could be in two fronts
    1)remove tds & tax on interest
    2)Make pan no. compulsory at the time of filing suit
    3)Where award is in two three petitioners names,separate pan Nos and interest bifurcation should be made mandatory at the time of deposition and also deduction of TDS.

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June 2021