The Supreme Court has set an important framework for assessing income for determining compensation in cases of death or injury in road accidents. The court has said that while determining compensation, Income Tax Return (ITR) should be considered the main basis of income. The Supreme Court said in its decision on Wednesday that the same formula cannot be applied to determine annual income in every case. However, the courts will have to adopt a uniform and clear approach while determining whether the victim was employed or carried on his own business or profession. Let us tell you in detail what are the new rules and if a person dies, how much compensation will he get?
1. Now ITR will get maximum importance in deciding compensation.
Supreme Court has made it clear that Income Tax Return i.e. ITR will be considered the most important document for determining income in motor accident compensation cases. The court believes that ITR is a statutory record deposited with the government, hence its credibility is more. Now insurance companies or other parties will not be able to challenge the income based on mere estimates or verbal claims. This will make it easier for the affected families to prove their actual income than before.
2. Now the method of determining compensation will be almost the same across the country.
The Supreme Court has said that due to different standards being adopted in different states and courts, there was a huge difference in the amount of compensation even in cases with similar circumstances. Some courts used to look only at the last ITR while some used to calculate the average of income of several years. Now the court has issued uniform guidelines, which will bring uniformity between the Motor Accident Claims Tribunal and the High Courts and compensation can be decided in the same manner in similar cases.
This is how compensation will be decided
3. For employed people, the last year’s salary will be the biggest basis.
The Supreme Court has acknowledged that the income of salaried employees is generally regular and stable. Therefore, if a working person dies in a road accident or his earnings are affected, then the ITR of the financial year immediately preceding the accident will be considered the main basis of his income. This means that your recent salary and tax records will play a big role in deciding how much compensation your family will receive.
4. Average income of three years will be seen for businessmen and self-employed
The income of businessmen, doctors, lawyers, contractors and other self-employed people does not remain the same every year. Sometimes business is good and sometimes income decreases. Keeping this reality in mind, the Supreme Court has said that in such cases it would not be appropriate to base the income on only one year. Therefore, for these people, the average income of ITR of last three years will be calculated and compensation will be calculated on the basis of the same.
5. Courts will also have the freedom to change the decision according to circumstances.
The Supreme Court has also made it clear that making ITR the primary basis does not mean that the same formula will be applicable in every case. If there are special circumstances in a case, such as recent expansion of the business, promotion or sudden change in income, the courts can also take these facts into consideration. That is, the guidelines will provide a common standard, but there will also be considerable flexibility for judicial discretion and the actual circumstances of the case.
6. Understand the law of compensation through example
Suppose a 35 year old working person, whose annual income as per Income Tax Return (ITR) is Rs 15 lakh, dies in a road accident. He is married and his wife and two children are completely dependent on him. In such a situation, to decide the compensation, first of all his annual income will be considered as Rs 15 lakh. Since his age is below 40 years and his job is permanent, 40% future income increase will be added to it. With this his income will increase to Rs 21 lakh. Next, since he has three dependents, it would be assumed that he spent one-third of his income on himself and the rest on his family. Therefore, after deducting one-third of Rs 21 lakh, the annual financial contribution for the family remains Rs 14 lakh.
Now the multiplier of 16 fixed for the age of 35 years will be imposed.
15 lakh + 40% future expense = 21 lakh
21 lakh × 2/3 (after deducting personal expenses) = 14 lakh
14 lakh × 16 (Multiplier) = 2.24 crore
Apart from this, around Rs 70 thousand to Rs 1 lakh can be added under consortium for wife and children, funeral expenses and loss of property. In this way the total compensation can reach around ₹ 2.25 crore. However, how much money will actually be received is decided in the court only. The court decides the compensation based on what the actual circumstances are. This has only been estimated as per the rules.
Also read- ₹370 biryani controversy reaches Supreme Court, demand raised for regulation of digital platforms
Leave a Reply