Income Tax Exemption Rules for Defence Pensioners : Changes after GMO and ER 2023

GMO & ER 2023 and applicability of Income Tax Exmption to Armed Forces Retirees

According to the New GMO & ER 2023, applicability of disability pension has now been changed. According to the New ER 2023, only medically invaklided out of service personnel are authorised to get disability comprises of service element and disability element. In the other hand those who retires with disability but has completed his terms and conditions of engagement/appointment and Discharged at own request, will be awarded only Impairment relief and not entitled to get disability pension. Hence such retired personnel will not be eligible get exemption of Income Tax Exemption. Those who have been invalided out of service are entitled to get exemption from paying income tax on their total pension.

Authority for Exemption of Disability Pension (including Service element)

[F. No. 200/51/00-ITA-1 dt. 02.7.2001 from Ministry of Finance Deptt. Of Revenue Central Board of Direct Taxes, New Delhi.]

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. SahuOfficer 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.

ConclusionThe disability pension given to Armed Forces Personnel are having two components-disabilityelement & service element. Both are tax free vide Ministry of Finance notification read withclarification from CBDT and also there can not be any TDS as the amount is fully tax free.
*  (Officer in the sense all defence personnel)

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.

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.