What Is Disability Pension
Disability pension is paid to service members who suffer a medical disability attributable to, or aggravated by, military service.
- Service Element – compensates for loss of career; normally 50 % of last drawn pay (subject to qualifying service).
- Disability Element – compensates for physical disability; a percentage of last pay depending on the degree of disablement.
In some cases two different components may be credited through separate Pension Payment Orders (PPOs), yet both parts constitute “disability pension” for tax purposes. After introduction of SPARSH, Service element and disability element/pension is combined into a single PPO.
Is Impairment Relief also Exempted from Paying Income Tax ?
Impairment Relief introduced in September 2023 and it is applicable to those disabled soldiers who released from Armed Forces with disability attributable to/aggravated by military service on completion of terms of engagement or at own request be for completion of terms of engagement. Since this is similar to disability element, it is also assumed to be exempted from paying income tax.
Key Legal Milestones in Tax Exemption
| Year | Instrument | Impact |
| 1922 | Govt. Notification 878‑F | First granted income‑tax exemption to invalided personnel. |
| 1970 | CBDT Instruction 136 | Clarified that entire disability pension (service + disability) is tax‑free. |
| 2001 | CBDT Instruction 2/2001 | Reiterated full exemption; directed field officers to allow it uniformly. |
CBDT Circular 13/2019 & the Controversy
In June 2019, CBDT limited exemption only to those “invalided out” and excluded personnel retiring on superannuation/voluntary retirement. This restriction triggered multiple writ petitions from veterans’ groups.
Click here to read the CBDT Circular 13/2019.
Supreme Court Status‑Quo Order (Pradeep Mathur & Ors. v. UOI)
In the matter of Shri Pradeep Mathur & Others vs. Union of India & Others [W.P. (C) No. 953/2019], the Hon’ble Supreme Court, vide its order dated 30.08.2019, directed that ‘pending further consideration, the parties shall maintain status quo in the matter.
- On 30 Aug 2019, the Apex Court ordered status quo, effectively freezing Circular 13/2019.
- Result: the older Instruction 2/2001 (full exemption) remains operative until final judgment.
Click here to read the Supreme Court Order of 30.08.2019
PCDA Circular 211/2020 – No TDS Until Final Verdict
Following MoD‑Fin directives, PCDA(P) Allahabad issued Circular 211 on 3 Mar 2020, instructing all Pension Disbursing Agencies (PDAs) not to recover Income‑tax on disability pension pending the court’s decision.
Click here to read the PCDA Circular 211/2020
Current Position (2025): Who Gets the Exemption?
| Scenario | Tax Status | Authority |
| Invalided out due to disability (any rank) | 100 % tax‑free (service + disability) | Instruction 2/2001; SC status‑quo |
| Superannuated / VR personnel with attributable/aggravated disability | 100 % tax‑free (per recent ITAT & HC rulings) | Col J.P. Singh (P&H HC), ITAT Delhi |
| Family pension to NOK of disabled soldier | Taxable, except standard ₹15,000/33 % rebate under §57(iia). | Standart IT Act of treatment of Pension for applicability of income tax. |
Bottom line: Until the Supreme Court pronounces otherwise, no income‑tax is to be deducted on the full disability pension (both elements) of eligible disabled soldiers.
Step‑by‑Step: Claiming the Tax Exemption
- Check Your PPO – Ensure it clearly bifurcates service & disability elements.
- Collect Medical Board Documents – Show disability is attributable/aggravated by service.
- Submit Declaration to Bank/CPPC – Quote PCDA Circular 211 & Instruction 2/2001.
- Form No. 10‑IEA (if CBDT notifies) – Keep ready for future; currently not required.
- Verify Form 16 – Year‑end Form 16 from bank should show ‘Nil’ TDS on the pension components.
- File ITR – Report pension under “Exempt Income” → Section 10 (Misc.). Please do not include your military pension (both disability element and service element) in salary income portion or any where except “Exempted income” section. This is for reporting purpose only. This amount never comes in accounting of income/deduction.
Bank / PDA / SPARSH Compliance Checklist
- Load PCDA Circular 211 in core‑banking system.
- Flag PPOs bearing disability codes to auto‑suppress TDS.
- Maintain an auditable register of exempt cases.
- Re‑validate on final SC verdict; issue alerts to pensioners.
Frequently Asked Questions
| Q | A |
| Does the exemption apply to JCOs & OR? | Yes—rank agnostic since 1922 Notification. |
| Is Service both the pension exempted if disability aggravated/ attributable to Military service ? | Yes. |
| Is invalid pension completely exempted | Yes |
| Is voluntary retirement (VR) covered? | Presently yes, per ITAT & HC rulings; subject to SC’s final view. |
| Will arrears refunded after wrongful TDS? | File Form 30 + rectified return; claim refund with interest u/s 244A. |
| What if bank still deducts TDS? | Escalate to CPPC → PCDA(P) Helpdesk → file grievance with CBDT PGPortal. |
Key Takeaways
- Full exemption for both service & disability elements including impairment relief stands—backed by 1970 & 2001 CBDT instructions.
- CBDT Circular 13/2019 is on hold; Supreme Court status‑quo prevails.
- PCDA Circular 211/2020 directs all PDAs not to deduct or recover tax until case closure.
- Maintain documentation and monitor Supreme Court updates to safeguard the benefit.
Action for Veterans: If you notice any TDS on your disability pension, cite PCDA Circular 211 and request an immediate refund from your disbursing branch.
Stay updated! When the Supreme Court delivers its final judgment, revisit this page for an immediate analysis and any change in compliance steps.
For detailed information on how ti file ITR with Disability pension please watch video available in our channel – www.youtube.com/@esminfoclub
