INTRODUCTION
Tax is a binding financial charge or levy imposed by the government on individuals, businesses, or organizations to raise revenue for public welfare or purposes. It is a legal obligation for each to pay tax and adhere to its involuntary nature, wherever and whenever needed.[1]. There are primarily two types of taxes that are mentioned, namely, direct tax and indirect tax. Direct tax is applicable directly on the income of the individual, regardless of their income status, whereas indirect tax is operative on goods and services, irrespective of the individual’s paying capacity. Under the definition laid down in section 4 of the Income Tax Act 1961[2] Stated that “if the Government mandates that Income tax shall be charged for a particular assessment year at a specified rate, then income tax is charged at the same rate for that year. The income tax law runs on the basic principle that asserts that income earned in the previous year is taxable in the assessment year, limited to some exceptions. No tax shall be levied or collected except by the authority of law ( Article 256 )[3].
Every year on 1st February, Amendments are made by the Parliament of India through the Finance Act and communicated to the Public at large via the Annual Union Budget. Any Introduced Amendments shall take effect from the subsequent fiscal year and be operative only to the preceding income. The Union Minister has introduced a new Union Budget for 2025-26, where threshold limits for the exemption have been significantly elevated to 12 lakh rupees and institutes zero tax liability to the prescribed limit.[4]. This substantive recalibration of personal income tax anticipates an increase in the volume of income tax return filings, and individuals from various sectors can now feel more encouraged to contribute to the tax system without incurring any tax liability. This fiscal relief is strategically beneficial to individuals who previously avoided taxes due to irregular or low incomes, and can now enjoy the benefits of the new tax regime. One of the primary objectives of filing an income tax return is to get clarity on one’s estimated income for the financial year or the applicable fiscal year, and it also removes ambiguities in the computation of income of a person in a motor vehicle accident claim by providing more credible information on income through these ITRs.
In India, some primary determinants such as age, income, and dependency status are of critical importance while calculating the income of the deceased person. Determination of the income of the deceased person is co-extensive with the income loss following his demise. Compensation is awarded to the person based on their actual income; in the absence of actual recorded income, it is evaluated on the basis of the minimum wage norms prescribed in the state laws. Section 166 of the Motor Vehicle Act 1988[5] Stated that :
- An application for compensation for the deceased person may be instituted by the person who has sustained the injury, the property owner whose property is destroyed, a legal heir of the representative and an authorized agent can file a complaint on this behalf.
- A complaint filed by one legal heir can be beneficial to all and inclusive of all.
- There is statutory abetment of claiming double compensation if somebody has already availed the benefit under section 164[6], following section 149[7].
- Jurisdiction for the complaint lies within
- Where the accident happened
- Where the claimant lives or works
- Where the opposite lives.
- The Application must be filed within 6 months of the date of the accident.
- A Police report sent to the tribunal can be treated as a claim for compensation.
- The Right to claim compensation lies with the family of the injured person, contingent upon his death
CASE CRITIQUE
National Insurance Co Ltd Vs Pranay Sethi[8] addresses the compensation claim by the complainant under the Motor Vehicle Act 1988, where the dispute revolved around the determination of the computation of compensation concerning the prospects and selection of multipliers, particularly if the deceased person was individually employed or on a fixed salary. As expounded in the precedent, the legal heir of the complainant sought relief for demise under section 166 of the Motor Vehicle Act, 1988, by raising the issue of whether a notional percentage of additional salary should be included in the current income to reflect future earning capacity. After careful consideration of the Supreme Court in different cases ( Sarla Verma, Reshma Kumari, Rajesh, and Santosh Devi), and upheld that there should be a standardised framework to fix a certain percentage additional to actual income based on notable variables such as the age of the deceased person about their prospects. Hon’ble Supreme Court enunciated the interpretation of prospects that previously confined only to the salaried person, but now it equally extends to the self-employed, which also points to the decisive rules for percentage according to the age group specified, where the person whose age is 40 or 40 and 50 years or 50 – 60 years gets addition of 40%, 25% and 10% respectively. Additionally, the court decided the conventional amount for loss of property, loss of consortium, and funeral expenses as 15000, 40000, and 15000 rupees, respectively. This ensures fairness, uniformity, and consistency in future cases with structured amounts and formulae.
Kirti v. Oriental Insurance Co.Ltd[9] The Supreme Court explained that in India, people are engaged in household activities, small-scale businesses, tuition, and the agricultural sector, which execute essential economic functions and reflect a substantial and meaningful contribution to India. These, along with others, comprise 90 % of the total workforce in India that is beyond the operational domain and purview of the direct tax mechanism. If this sizeable employee base starts filing income tax returns, it will reflect and provide pace to the computation of compensation in accidental cases. These Judicial pronouncements have constantly been explaining the worth of documentary evidence in the review of the Motor Vehicle Act 1988 jurisprudence. This documentary evidence, such as salary slips, financial statements of the businesses, and bank records, has authenticity, credibility, and holds evidentiary value. An individual who is employed in the organised sector, particularly a government department, has passive income and a recorded statement of their transactions, inclusive of regular ITR filings. In contrast, a person who belongs to the unorganised sector generally has a low or irregular income, disbursed in cash, with insufficient proof of income. In S Vishnu Ganga Vs Oriental Insurance Company Limited observed that “ It is no longer res integra that Income Tax Returns are reliable evidence to assess the income of a deceased”[10]
CONCLUSION
Income Tax Returns are admissible and corroborative evidence to ascertain the income of the deceased person in the motor accident compensation adjudication. Nevertheless, the court appreciates having other supplementary material to support the income–related assertions, particularly where income discrepancies are evident. Additionally, the court emphasised the proper verification of the authenticity of filled ITRs and actual income in cases where a significant difference is observed.[11]
Author(s) Name: Navneet Pal (Invertis University, Bareilly)
References:
[1] ‘Income tax’ ( cleartax , 04 Feb 2025 ) <https://share.google/yg0GdBPNwmIRNmoNE> accessed 16 July 2025
[2] Income Tax Act 1961, s 4
[3] Constitution of India , art 256
[4] ‘Union Budget 2025’ ( THE HINDU, 02 Feb 2025, 12:42 am IST) <https://share.google/nOqYhhU9b24LyR2LE> accessed 16 July 2025
[5] Motor Vehicle Act 1988, s 166
[6] Motor Vehicle Act 1988, s 164
[7] Motor Vehicle Act 1988, 149
[8] National Insurance Co Ltd Vs Pranay Sethi (2017) 16 SCC 680.
[9] Kirti v. Oriental Insurance Co.Ltd (2021) 2 SCC 166.
[10] S Vishnu Ganga Vs Oriental Insurance Company Limited (2025) INSC 123
[11] Hafiz Gouran & Noureen Khan, Impact of New Tax Regime on Motor Accident Compensation awards, (Live Law, 03 July 2025 ) < https://www.livelaw.in/articles/impact-new-tax-regime-motor-accident-compensation-awards-296364> accessed 17 July 2025
