The Finance Bill, 2026 proposes relief measures for victims of motor accidents by exempting interest income awarded under the Motor Vehicles Act, 1988 from income tax and removing tax deduction at source on such interest. Under the proposed amendment to Schedule III of the Income-Tax Act, 2025, any interest received by an individual or their legal heir on compensation awarded by the Motor Accidents Claims Tribunal will not be included in total income, recognising the compensatory nature of such receipts. In parallel, section 393 is amended to provide that no tax shall be deducted at source on interest paid on such compensation when the recipient is an individual, irrespective of amount, replacing the earlier ₹50,000 threshold. For recipients other than individuals, the threshold continues to apply. These changes are intended to ease financial hardship for accident victims and their families and simplify compliance. The exemption and TDS relief will take effect from 1 April 2026 and apply from tax year 2026–27 onwards.
Exemption on interest income under the Motor Vehicles Act, 1988.
Exiting section 11 of the Income-tax Act, 2025 inter alia provides for the exemption of income of persons included in Schedule III subject to the fulfilment of conditions specified therein.
2. The provisions of Motor Vehicles Act, 1988 inter alia provides for compensation and interest on such compensation to be awarded by the tribunal under said Act, to an individual or his legal heir, on account of death or on account of permanent disability or any bodily injury under the said Act.
3. In order to alleviate sufferings of victims of such accident and their family which may cause extreme hardship to the aggrieved person and family, it is proposed to amend the said Schedule to provide exemption to an individual or his legal heir, on any income in the nature of interest under the Motor Vehicles Act, 1988.
4. These amendments will take effect from the 1st day of April, 2026 and shall accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.
[Clause 108]
No tax to be deducted at source in respect of interest on compensation amount awarded by Motor Accidents Claims Tribunal to an individual
As per the provisions of section 393(4) [Table: Sl. No. 7, Column C (c)(iv)] of the Act, tax is not required to be deducted in respect of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal, if the amount or the aggregate of the amounts of such income does not exceed ₹ 50,000 during the tax year.
2. In order to provide relief to the individual and to alleviate the hardship caused due to accident, it is proposed that no tax shall be deducted at source in respect of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal to an individual.
3. The amendment will take effect from the 1st day of April, 2026.
[Clause 72]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 72 seeks to amend section 393 of the Income-tax Act, 2025 relating to tax to be deducted at source.
It is proposed to make consequential amendment in sub-section (1) of the said section regarding cross reference.
Sub-section (4) [Table: Sl. No. 7] of the said section provides for condition where tax is not required to be deducted at source in respect of interest on income other than interest on securities referred to in sub-section (1) [Table Sl. No. 5(ii) and 5(iii)] of the said section.
It is further proposed to amend clause (a)(i) of sub-section (4) [Table: Sl. No. 7. C] so as to provide that interest income paid or credited to any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank) shall be exempt from applicability of deduction of tax at source.
It is also proposed to amend clause (b)(c)(iv) thereof so as to provide for non-applicability of tax to be deducted at source on the payment or credit of interest on the compensation amount awarded by a Motor Accidents Claims Tribunal, in case of deductee being an individual. For persons other than individuals, the earlier threshold of ₹50000 in the said clause shall continue.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years.
It is also proposed to insert a new sub-section (6A) in the said section so as to allow depository to accept declaration from the assessee as per the provisions of section 393(6) of the said Act and provide it to the person responsible for paying income of the nature referred to in 393(1) [Table: Sl. Nos. 4(i), 5(i) and 7] within a fixed timeline. However, this additional option shall be available only to those investors who have held the securities in the depository as defined in section 2(e) of the Depositories Act, 1996 and where the securities are listed in a registered stock exchange in India.
It is also proposed to make consequential amendments in sub-section (7) of the said section.
These amendments will take effect from 1st April, 2027 and will, accordingly, apply in relation to the tax year 2027-2028 and subsequent years.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
72. Amendment of section 393.
In section 393 of the Income-tax Act,––
(a) in sub-section (1), in the Table, in serial number (3), in Note 3, for the words, figures and brackets “serial number 3(iii)”, the words, figures and brackets, “serial number 3(i)” shall be substituted;
(b) in sub-section (4), in the Table, against serial number 7, in column C,––
(i) in clause (a), in sub-clause (i), after the words “banking company”, the words and brackets “or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank)” shall be inserted;
(ii) in clause (b), in the long line, in sub-clause (c), for item (iv), the following item shall be substituted, namely:—
“(iv) on the compensation amount awarded by a Motor Accidents Claims Tribunal—
(A) to an individual; or
(B) to a person other than an individual, where the aggregate interest on such compensation does not exceed ₹ 50000 during the tax year;”;
(c) sub-section (6) shall be renumbered as sub-section (6) (a) thereof and after sub-section (6) (a) as so renumbered, the following clause shall be inserted with effect from the 1st April, 2027, namely:––
“(b) The declaration referred in clause (a) may also be furnished electronically to a depository, as defined in section (2)(e) of the Depositories Act, 1996, where––
(i) the income is from units, interest on securities or dividends, as the case may be, as referred to in section 393(1) [Table: 4(i), 5(i) or 7];
(ii) such units or securities are held with such depository; and
(iii) such securities are listed on a recognised stock exchange, in accordance with such procedure and manner, as may be prescribed.”;
(d) for sub-section (7), the following sub-section shall be substituted, namely:––
“(7) The person responsible for paying any income or sum of the nature referred to in sub-section (6) shall deliver or cause to be delivered, such declaration referred therein, received from the person, as specified in column (B) of the Table in sub-section (6) or the depository, to the prescribed income-tax authority, on or before the seventh day of the month immediately following the end of each quarter in which declaration is furnished to him as per sub-section (6).”.
