Page 37 - The Insurance Times November 2025

Motor Accident Compensation

Evaluating the Impact

of the New Tax Regime

on Motor Accident

Compensation Awards Hafiz Gouran Noureen Khan

Assistant Manager (Law), Advocate
The Oriental Ins. Co. Ltd. Rajasthan High Court

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.

T he Union Budget 2025-26 has introduced a notable income is provided, the compensation is determined based
increase in the basic income tax exemption limit and
on the actual income. In the absence of such proof,
has redrawn the contours of personal taxation by
compensation is calculated according to the minimum wages
introducing a zero-tax threshold for incomes up to
Rs. 12 lakh. With the effective tax exemption, a substantial notified by the respective state.
increase in return filings is anticipated. For many in the Courts typically treat Income Tax Return as the primary proof
unorganised sector, gig economy, and among self-employed of income in motor vehicle accident cases. In National
professionals or homemakers earning modest incomes, the Insurance Co. Ltd. v. Pranay Sethi 2017 INSC 1068, the
prospect of filing returns without incurring a tax burden reduces Supreme Court laid down structured guidelines for
hesitation and increases engagement with the tax system. computation of compensation, clearly prioritizing actual
income proof over notional figures. With a growing number
With the increase in the basic exemption limit to Rs. 12 lakh of people filing them, compensation awarded is expected to
under the new tax regime, many individuals who previously become fairer and potentially higher.
avoided filing income tax returns due to low or irregular
income or to avoid tax liability, now find it beneficial - even India's unorganised sector, which accounts for nearly 90% of
strategic - to do so. The recent Union Budget's revision of the total workforce, has traditionally remained outside the
income tax slabs has triggered more than just financial relief scope of direct taxation because of low or unrecorded
for low- and middle-income earners - it could significantly incomes. The significance of filing an Income Tax Return (ITR)
reshape how motor vehicle accident compensation is becomes evident by an example. Imagine a 24-year-old man
calculated for daily wage earners, gig workers, informal who tragically loses his life in a motor accident in January
employees, and homemakers. 2023, leaving behind his wife and mother. He was employed
as a mechanic in Rajasthan. In the absence of documentary
In India, compensation awarded under the Motor Vehicles Act evidence proving his income and occupation, the Motor
majorly depends upon the income of the deceased (claimant- Accident Claims Tribunal (MACT) would rely on the Minimum
in case of injury), age and dependency. Since the Wages Notification issued by the Rajasthan government to
compensation is calculated based on loss of income after the determine his income. For the year 2023, the minimum wage
accident, it increases as the income rises. If valid proof of for unskilled labour was Rs. 7,410. Now, imagine if a person

34 November 2025 The Insurance Times