Union Budget 2026 — Key Changes for Policyholders: Motor Accident Claim Interest Exemption and Other Updates

The Union Budget, presented annually by the Ministry of Finance, sets the financial plan for the coming fiscal year. The Union Budget 2026, announced by Finance Minister Smt. Nirmala Sitharaman, introduced several measures to shape the country’s economic direction.

A key change affects interest awarded by Motor Accident Claims Tribunals (MACT). Under the new rule, motor accident victims can receive their full compensation faster, without tax or TDS deductions on that interest. Here’s what that means in simple terms.

If you are a motor insurance policyholder, here is the main Union Budget 2026 highlight you need to know about: 

• As per the Union Budget 2026, the interest given by MACT to a natural person (an individual or legal heir) will not be treated as taxable income.
• Finance Minister Smt. Nirmala Sitharaman said such interest will be exempt from income tax, and any TDS on it will be removed. Earlier, this interest was taxed as ‘income from other sources’, and TDS often reduced the immediate payout to victims.
• For the uninitiated, MACTs are district-level tribunals set up under the Motor Vehicles Act, 1988, to provide quick compensation for injuries, deaths, and property damage from road accidents.
• Faster payouts can prove to be very helpful given the high number of road accidents nearly 27,000 deaths on National Highways occurred in the first half of 2025. They can ease financial strain for affected families. This change is part of the Union Budget 2026 income tax measures effective from April 1, 2026.

For entities other than individuals, current rules remain: interest over a specified amount will be subject to TDS.
 

Besides the interest exemption on MACT, the Budget 2026 income tax package includes other measures as well:

Stronger Manufacturing Push

The budget focuses on building more factories. Major schemes for biopharma, semiconductors, and electronics components aim to create jobs and make India a global maker of key products.

Help for Small Businesses and Jobs

One of the key Union Budget highlights was the push to encourage the local economy. New funds and programs (SME Growth Fund, Self-Reliant India Fund top-up, easier invoice financing, and more) will give small firms more capital and cash flow. 

More Infrastructure and Better Transport

Higher public spending and new projects, in the form of new freight routes, waterways, seven high-speed rail corridors, and coastal cargo schemes, have also been announced. These aim to improve the movement of goods and reduce logistics costs over time.

Focus on Health and Care

Union Budget 2026 also announced expansion of medical tourism through regional medical hubs and AYUSH, and better mental-health and trauma resources for citizens. This can mean better access to health services for citizens.

Support for Workers’ Skills and Youth

New skilling initiatives, AVCG (Animation, Visual Effects, Gaming and Comics) labs in schools, and an education-to-employment committee will be set up to make young people job-ready in technology and creative fields.

Ease for Digital and IT Investment

Tax breaks and clearer rules for cloud and IT services have been announced to simplify compliance for Indian IT companies.

Overall, these measures, in addition to many more, have been announced with an aim to grow the economy, create jobs, and improve services that matter to everyday Indians. 

Union Budget 2026 makes a practical change by proposing the exemption of the interest awarded by MACT and removing TDS from it. Along with other Income Tax 2026 Budget measures that simplify rules and boost digital infrastructure, these steps should help speed up claims, reduce hassles, and make insurance more accessible for policyholders.