Income Tax Exemption Rules for Defence Pensioners

income tax exemption

Total Defence pension is exempted from paying Income Tax for the veterans who are receiving disability pension. You might have question that “I am getting service pension and disability pension bot. So, both the the pension is exempted or only disability pension is exempted ?. Let’s read the article till end to get a detailed clarification.

Yes, the entire pension, that is, service element ( equal to service pension) and disability element of disability pensioners is exempted from paying income tax for all ranks of Indian Armed Forces veterans.

List of Income Tax Exempted Income including various Allowances for Defence Personnel

Disability Pension comprises of two elements, service element and disability element. Recepient of Invalid pension also are exempted paying income tax for the total amount of his invalid pension. Those who have not rendred minimum pensionable qualifying service are not entitled to get service pension. They may get invalid pension or disability pension.

What is invalid pension : In the event of the disability is not attributable or not aggravated by military service and invalided out of service before completion of minimum qualifying service i.e 15 years for JCOs/OR and 20 Yrs for officers, the soldier will be entitled to get invalid pension. Minimum 10 years of service is compulsory to get invalid pension. However from July 2019, if the disability is fully incapaciated for military and civil service, may get invalid pension even not completed 10 years of service.

Disability pension – Disability pension comprises two element – service element and disability element. Where service rendered is less than pensionable service, Service element is granted which is 50% of last emolument (same as service pension) and disability element is granted in terms of the percentage of disability. There is no minimum qualifying service prescribed for service element or disability element, hence even if a person has a single day of service, he or she is entitled to disability pension. For individuals who have completed their minimum qualifying service for pension, their service pension becomes the service element for purposes of disability pension.

Both elements are Exempted ? – Both elements are exempted from Income Tax and so are the arrears of both elements. The same has been clarified by the Ministry of Finance, Department of Revenue vide Instruction No 2/2001 dated 02 July 2001 and Instruction No 136 dated 14 January 1970. The Govt orders are reproduced below :-

Instruction No 136
F. No. 34/3/68-IT(AI)
Govt. of India
Central Board of Direct Taxes
New Delhi, dated the 14th Jan 1970

From: Shri S N Nautial
Secretary, CBDT

To: All Commissioners of Income Tax

Subject: Exemption – Service and Disability Element of Disability Pension granted to a disabled officer of the Indian Army – whether exempted from Income Tax.

Reference is invited to the Board’s Letter F No 42/9/59-IT(AI), dated the 5th Sept 1960 on the above subject wherein it was mentioned that in the cases falling under Item (29) of Finance Deptt Notification No 878-F (Income Tax) dated 21-3-1922, the ‘disability element’ of the disability pension received by an officer of the Army will only be exempted from tax and that the ‘service element’ will be subjected to tax.

  1. On reconsideration of the matter, in consultation with the Ministry of Law, the board are advised that item 29 of the notification does not differentiate between types of pensions. Accordingly in the cases falling under item 29 of the above notification, entire disability pension will be exempted from income-tax.
  2. The above instructions may be brought to the notice of all assessing officers in your charge.

Yours faithfully,

Sd / – (S N Nautial)
Secretary CBDT

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