Evaluating the Impact of the New Tax Regime on Motor Accident Compensation Awards

In India, compensation awarded under the Motor Vehicles Act majorly depends upon the income of the deceased (claimant- in case of injury), age and dependency. Since the compensation is calculated based on loss of income after the accident, it increases as the income rises.

- Hafiz Gouran, Noureen Khan

The Union Budget 2025-26 has introduced a notable increase in the basic income tax exemption limit and has redrawn the contours of personal taxation by introducing a zero-tax threshold for incomes up to Rs. 12 lakh. With the effective tax exemption, a substantial increase in return filings is anticipated. For many in the unorganised sector, gig economy, and among self-employed professionals or homemakers earning modest incomes, the prospect of filing returns without incurring a tax burden reduces hesitation and increases engagement with the tax system.

With the increase in the basic exemption limit to Rs. 12 lakh under the new tax regime, many individuals who previously avoided filing income tax returns due to low or irregular income or to avoid tax liability, now find it beneficial - even strategic - to do so. The recent Union Budget's revision of income tax slabs has triggered more than just financial relief for low- and middle-income earners - it could significantly reshape how motor vehicle accident compensation is calculated for daily wage earners, gig workers, informal employees, and homemakers.

In India, compensation awarded under the Motor Vehicles Act majorly depends upon the income of the deceased (claimant- in case of injury), age and dependency. Since the compensation is calculated based on loss of income after the accident, it increases as the income rises. If valid proof of income is provided, the compensation is determined based on the actual income. In the absence of such proof, compensation is calculated according to the minimum wages notified by the respective state.