The term disability pension is neither defined under the Income Tax Act nor is there any clear provision of law that exempts the disability pension. For example, section 10 of the Income Tax Act that exempts various kinds of income from being included in total income, do contain a provision under sub-section 18 and 19 for tax exemption to certain types of pension related to Galantry Award winners etc. But , there is noting mentioned about the army disablement pension.
Types of Disability Pension & its Computation
|Type of Disability||Disability||Disability Pension to War/Battle Disabled Person||Disability Pension to other than War/Battle Disabled Person|
|less than 20% disability||Nil disabled||Nil|
|21% to 50%||50% disabled,||30% of the last pay drawn||15%|
|51% to 75%||75% disabled||45% of the last pay drawn||22.5%|
|Exceeding 75%||100 % disabled||60%||30%|
Read more on army pension rules
What does pension on ground of disability consists of ?
The disablement pension has two parts i.e., Service Part and Disability part. Both are computed separately and also have separate pension pay order (PPO) . The service part is fixed 505 of last pay drawn ,just like normal retiring pension . But the disability part is decided upon the percentage of disablement as decided by Release / Invalidment Medical Board (RMB/IMB). In nutshell , a person may get a normal retiring pension (subject to qualifying service period) and also a disability pension. In this post we are only discussing the taxation of amount of pension received on ground of disablement by the RMB/IMB
Tax Exemption on Disability Pension
The entire pension, that is, service pension)as well as disability element is exempted from the purview of Income Tax as clarified in the Instruction No 2/2001 dated 02 July 2001 and Instruction No 136 dated 14 January 1970 and circular no 13 /2019 dt 24th June 2019 made t crystal clear that both elements of the disability pension-service element and disability element- shall be tax free . All these instructions and circulars are reproduced below :
Who does not get tax exemption?
Armed forces not only allow the pension to personnel who gets a pension for disability attributable to or aggravated by the service condition but also another type of pension called “invalid Pension” to people who gets invalidated for some reasons other than war/battle or service conditions. Sometimes, people get confused and treat both types of pensions the same. The fact remains that both pensions are granted on account of some kind of disablement, but the nature of pension, circumstance on which it is granted and the quantum of pension, granted is different.
An invalid pension is granted to an individual who has completed a qualifying service of 10 years or more and is invalided out of service with a disability that is neither attributable to nor aggravated by service (NANA). In that case, he/she may be given the service element of pension but not the disability element of pension.
In the opinion of the author , invalid pension is not tax free. Similarly , the tax exemption is also not available to those AFP who retire after full service with some disability.This point is clarified by the CBDT in its circular dt 24/06/2019
CBDT Circular No. 13/2019-Income Tax dt 24th June 2019
Circular No. 13/2019-Income Tax F. No. 173/250/2019-ITA-1 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi Dated: 24th June, 2019 Subject: Exemption of service element and disability element of disability pension granted to disabled personnel of armed forces who have been invalided on account of disability attributable to or aggravated by such service–reg. Under the existing provisions of clause (i) of sub-section 2 of section 297 of the Income tax Act, 1961 (‘Act’) any notification issued under sub-section (1) of section 60 or section 60A of the Indian Income-Tax Act, 1922 (now repealed) and in force immediately before the commencement of the Act shall continue to be in force to the extent to which no provision has been made under the Act. Previously, in exercise of powers conferred under section 60 of the Indian Income-Tax Act, 1922, vide Notification no. 878 F dated 21.03.1922, it was ordered at para 19 that “pensions granted to members of His Majesty’s naval, military or air forces who have been invalided for naval, military or air force service on account of bodily disability attributable to or aggravated by such service would be exempt from tax under the Indian Income Tax Act, 1922″. 2. In furtherance to the above, instruction 136/1970 dated 14.01.1970 in F.No. 34/3/68 IT(AI) and instruction no. 2/2001 dated 02.07.2001 in F.No. 200/51/99-ITA-1 have been issued to clarify that the entire disability pension, i.e. “disability clement” and “service clement” of a disabled officer of the Indian Armed Forces continues to be exempt from income tax under the Income-tax Act, 1961. 3. Representations have been received, requesting to clarify whether the exemption is applicable only to the disabled officers of Armed Forces or all disabled Armed Forces Personnel (i.e. including officers and Jawans). Representations have also been received to clarify as to whether the Income Tax exemption would be limited to only such disabled Armed Forces Personnel who arc invalided out of service due to disability attributable to or aggravated by military service condition or to even those who retire after full service with some disability. 4. The matter has been examined in the The notification no. 878-F dated 21.03.1922, provides income tax exemption to all members of Armed Forces who have been invalided for naval, military or air force service on account of bodily disability attributable to or aggravated by such service. Thus, income-tax exemption under above clause would be available to all armed forces personnel (irrespective of rank) who have been invalided for such service on account of bodily disability attributable to or aggravated by such service. 5. Further, such tax exemption will be available only to armed forces personnel who have been invalided from service on account of bodily disability attributable to or aggravated by such service and not to personnel who have been retired on superannuation or otherwise. -sd – (Rajarajeswari R.) Under Secretary to the Government of India
Instruction No 136 dated 14 January 1970
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. 2. 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. 3. The above instructions may be brought to the notice of all assessing officers in your charge Yours faithfully, Sd / - (S N Nautial) Secretary CBDT
Instruction No 2/ 2001 dt 2/07/2001
Instruction No 2/ 2001 F.No. 200/51/99-ITA. I Govt. of India Ministry of Finance Deptt of Revenue Central Board of Direct Taxes New Delhi, the 2nd July, 2001 To: All Chief Commissioners of Income-Tax All Directors General of Income-Tax Subject: Exemption from Income Tax to disability pension, i.e., “disability element” and “service element” of a disabled officer of the Indian Armed Forces – Instructions regarding Sir, References 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 inspite of Board’s Instruction No 136 dated 14th January 1970 (F No 34/3/68-II(AI) ). 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 brought to the notice of all officers working under you. Yours faithfully Sd /- (B L Sahu) OSD (ITA-I)
Conclusion on tax exemption of disability pension
- It is fully tax-free -both service and disability part.
- It is available to all kinds of Armed Forces Personnel
- It is not available to those who got Invalid Pension.
- It is not available to AFP who retires on superannuation with some disability.