Mumbai, Feb. 1 -- In a move to ease the financial burden on accident victims, Union finance minister Nirmala Sitharaman, in her Budget 2026 speech, proposed a complete tax exemption on motor accident compensation as well as on the interest awarded for delays in the payment of such compensation.

Starting 1 April 2026, any compensation and interest awarded by the Motor Accidents Claims Tribunals or MACT to an individual or their legal heirs, whether due to death, permanent disability, or bodily injury, will be entirely exempt from income tax.

Earlier, the principal compensation amount was treated as a capital receipt, effectively making the interest earned on it taxable.

The proposed amendment to Sections 11 and 56 of the Income Tax Act,...