How ITR will decide motor accident compensation: SC issues new guidelines for salaried, self-employed and non-filers

Whether someone is a salaried employee, self-employed professional or someone who did not file an income tax return (ITR) in previous years, the Supreme Court has now clarified how a claimant's income should be assessed while deciding their motor accident compensation, according to a New Indian Express report.

These guidelines aim to bring uniformity in motor accident compensation cases, where victims or their legal heirs receive monetary support to cover losses, injuries, or damages caused by the incident.

Why did Supreme Court issue these guidelines?

The verdict was announced while hearing an appeal filed by an insurance company against a high court order that had fixed the deceased person's income by picking the highest tax returns from the last five years.

The apex court disapproved this approach, observing that selecting the highest return in isolation could lead to inflated compensation awards and place an unfair financial burden on insurers.

How income will be calculated for salaried and self-employed claimants

A two-judge bench of justices Sanjay Karol and N Kotiswar Singh said during that hearing that tax refunds are statutory records and carry a presumption of correctness. They also clarified how the income of claimants will be determined based on their sources of earnings:

• Salaried individuals: Since their income does not fluctuate significantly, the latest ITR will be the most accurate reflection.
• Self-employed persons: Since their earnings may vary, a three-year average ensures a realistic assessment.

The ruling came after the bench observed there is no straitjacket formula for computing income under the Motor Vehicles Act. It held that while determining compensation based on ITRs, tribunals must distinguish between salaried employees and self-employed individuals, given the nature of their earnings, according to the news report.

What if a claimant had a one-time gain or loss in their ITR?

The apex court further said tribunals are not bound to rely strictly on ITRs in every case. If a person's tax return for a particular year reflects exceptionally high income due to a one-time gain or unusually low income because of abnormal losses, the tribunal may deviate from it.

How will compensation be computed if the claimant did not file ITRs in previous years?

Where ITRs are not filed, courts may rely on Form 26AS, bank statements or salary slips, but must record reasons for doing so, the SC bench said.

It also noted that fluctuation in the income of self-employed victims needs to be factored in. It could arise from the nature of the business, growth pattern and impact of death on the business and its potential growth.

The court directed its registry to circulate the guidelines to all Motor Accident Claims Tribunals and high courts across the country to ensure uniform application in pending and future matters

How to file a claim for motor accident compensation?

A victim or their families can submit a claim under Section 166 in the following locations, depending on their eligibility:

• At the Claims Tribunal located in the area where the accident occurred.
• At the Claims Tribunal located in the area where the claimant (the person making the claim) resides.
• At the Claims Tribunal located in the area where the defendant (the opposing party) resides.

Once the tribunal is identified, one can engage a lawyer to prepare and file the claim under Section 166 of the Motor Vehicles Act.