Disability pension is exempted from income tax

Thousands of reemployed defence pensioners are paying a huge amount of income tax every year. This article is for them who do not have sufficient information regarding exemption of pension from paying income tax in certain cases. So, you might have heard somewhere that the disability pension of defence personnel is totally exempted from paying tax.

What is disability Pension

Firstly we should understand what is disability pension. Disability pension comprises two different element i.e service element or service pension (in case of qualifying service) and disability element. Those who have completed the minimum pensionable service is granted service pension and disability element. Most of the PBOR are not fall under purview of minimum taxable income.

Practical implication of Tax Exemption : A case Study

Whereas in case of reemployed personnel, they need to pay a huge amount of tax. One of my friend who are in Audit and Accounts department has paid income tax for a sum of Rs 92,000/- last year. He has drawn Rs. 3,60,000/- on account of pension ( Both the component service pension (element) and disability pension (element). Though the term service element and service pension are different, but in case of disabled soldier who have earned service pension , both the term are equal in nature.

Now with practical terms I want to clear doubts if any. My friend, as I described him above has calculated his total income Pay and allowances Rs 9,40,000/- for FY 2020-21 plus Pension (including disability element) Rs 3,60,000/- and his taxable income arrived at Rs 13,00,000/- . So, as per income tax calculation after getting deduction under 80C, home loan, NPS, med claim, he had paid income tax for a sum of Rs 92,000/-. Do you think he has paid rightly ? No, his calculation was wrong. He supposed to calculate his taxable income only Rs 9,40,000/- the amount he earned from his present reemployment. So he had done a mistake in his ITR so, paid extra income tax. When I asked him if he was not aware of exemption, he replied that, there was no coloumn to insert the deduction on account of defence medical pension.

What is the right procedure to get Exemption of disability pension ?

Doubt on this phase must be cleared. Where to insert the amount on account of defence medical pension. His entire pension amount required to be shown at Part B where Exempt income (For reporting Purposes) is mentioned and you should select from drop down box – Defense medical disability pension. This amount should not to included alongwith the total income or salary income at part A or any else where.

Govt authority letters and OM on Exemption of Income Tax for Disability Pensioners

According to the Govt orders, both the components of pension are exempted from paying income tax. Following Govt Orders are treated as authority.

Ministry of Finance, CBTD Cirular No No. 200/51/00-ITA-1 dt. 02.7.2001.
Govt of India, Ministry of Finance Press Release dated 20122007.
Ministry of Defence, PCDA Circular No. 210 Dated 20.02.2020.
Ministry of Defence, PCDA Circular No. 211 Dated 03.03.2020.

Detailed process of efiling Income Tax so that you can get your entire pension Tax exempted (both disability and service element) is available in our Youtube Channel. Click here to watch the video.

Copy of CBTD Cirular No No. 200/51/00-ITA-1 dt. 02.7.2001

Ministry of Finance Deptt. Of Revenue

Central Board of Direct Taxes, New Delhi.]

No. 200/51/00-ITA-1 dt. 02.7.2001

Subject: Exemption from income tax to disability pension, i.e. ”disability element” and “service element” of disabled officer of the Indian Armed Forces- Instructions regarding.

Reference have been received in the Board regarding exemption from income tax to disability pension, i.e. “disability element” and “service element” of a disabled officer of the Indian Armed Forces.

2. It appears that field formations in certain cases are not uniformly allowing disability, pension in spite of Board’s Instruction No.136 dated 14th January, 1970 (F.No.34/3/68-IT(A.1)).

3. The matter has been re-examined in the Board and it has been decided to reiterate that the entire disability pension, i.e. ” disability element” and “service element” of a disabled officer of the Indian Armed Forces continues to be exempt from income tax.

4. This may be bought to the notice of all the officers working under you.

Sd/-

B.L. Sahu

Officer on Special Duty (ITA .1)

Press Release, dated 20-12-2007

It has been reported in the press that some banks were deducting tax from pension of disabled exservicemen in violation of Government instructions. RBI was requested to have the matter investigated and remedial action taken. After examination, RBI discovered that in one specific instance, due to oversight, the pensioner’s disability pension was wrongly taken into account while calculating income-tax.

RBI has issued instructions to all agency banks to strictly adhere to the provisions of para 88.3 of Defence Pension Payment Instructions, 2005, regarding exemption of income-tax of the disability pension of the pensioners of Armed Forces. Banks have been advised to issue suitable instructions to all their pension disbursing branches that income-tax should not be deducted from the disability pension paid to the pensioners of the Armed Forces.

Click here to read/ download the Ministry of Defence, PCDA Circular No. 210 Dated 20.02.2020.

Click here to read/ download the Ministry of Defence, PCDA Circular No. 211 Dated 03.03.2020.

Know about Supreme court order on disability pension for NA NA Case.