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Taxability of Motor Vehicle Act Compensation and Delayed Interest Explained
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Motor Vehicles Act Compensation: Is Interest on Delayed Payment Taxable?
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Moneycontrol
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21-02-2026, 10:35
Motor Vehicles Act Compensation: Is Interest on Delayed Payment Taxable?
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Compensation under Motor Vehicles Act for death or disability is a capital receipt and not subject to income tax.
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Interest on delayed compensation is generally taxable, as per Section 194A of the Income Tax Act, requiring TDS if over Rs 50,000.
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The recent budget proposes to exempt interest received under the Motor Vehicles Act from tax starting April 1, 2026.
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Before April 1, 2026, such interest is treated as income, though some High Courts have held it non-taxable.
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If willing to litigate, one can argue that interest on delayed payment is part of the compensation and thus not taxable.
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