Overview
The Government of India provides special tax relief to armed forces personnel who suffer disabilities during service. However, confusion often arises regarding the taxability of disability pension and family pension. Recently, the tax authorities have clarified the exemption rules, making it easier for veterans and their families to understand their tax liability.
Union Budget Announcement
Disability pension is granted to members of the Armed Forces who are invalided out of service on account of a bodily disability that is attributable to, or aggravated by, military, naval or air force service, and comprises a service element and a disability element. The exemption was first provided under the Indian Income-tax Act, 1922. This has continued under the Income-tax Act 1961 through the repeal and savings clause, and notifications, administrative instructions and clarificatory circulars.
It is proposed to provide for exemption of disability pension, including both the service element and the disability element, only in cases where the individual has been invalided out of Armed Forces service on account of a bodily disability attributable to, or aggravated by, such service, and not where the individual has retired on superannuation or otherwise. It is also proposed that this exemption will also be available to paramilitary personnel.
These amendments shall take effect from the 1st day of April, 2026, and shall apply in relation to the tax year 2026-27 and subsequent tax years.
What is Armed Forces Disability Pension?
Disability pension is granted to armed forces personnel who suffer injury or disability during service. It usually consists of two components:
- Service element
- Disability element
The pension may be paid due to:
- Injury in combat or training
- Accidents during duty
- War-related or operational disability
- Medical invalidation from service
Tax Exemption under the Income-tax Act
The Income-tax Department has clarified that disability pension received by armed forces personnel is fully exempt from tax under Section 10 of the Income-tax Act.
This exemption applies to both:
- Service element
- Disability element
The clarification is based on judicial rulings and CBDT circulars.
Legal Basis for Exemption
The exemption is supported by:
- CBDT Circular No. 13/2019
- Various court rulings
- Income-tax Act provisions relating to disability and gallantry awards
Courts have consistently held that disability pension is compensation for injury and not income, and hence exempt.
Who is Eligible for the Tax Exemption?
The exemption applies to:
Armed Forces Personnel
Including:
- Army
- Navy
- Air Force
Personnel Invalidated from Service
Those discharged due to disability.
Personnel Continuing Service with Disability
Even if they continue employment and receive pension later.
What About Family Pension?
This is a common area of confusion.
Situation 1: Disability Pension to the Individual
Fully tax-exempt.
Situation 2: Family Pension after Death
Family pension is taxable, but eligible for standard deduction under income from other sources.
However, if the disability pension continues to the family in certain cases, the exemption may apply based on specific rulings.
Recent Clarification by Authorities
The tax authorities clarified:
- No TDS should be deducted on disability pension.
- Pension disbursing authorities must treat such payments as exempt.
- Armed forces personnel need not pay tax on disability pension.
This removes unnecessary litigation and refund claims.
Avoidance of Refund Delays
No excess tax deduction.
Relief for Disabled Soldiers
Supports their welfare and rehabilitation.
FAQs
Is disability pension fully tax-free?
Yes, it is fully exempt.
Is the service element also exempt?
Yes, both service and disability components are exempt.
Is exemption available for all ranks?
Yes, from jawans to officers.
Is family pension tax-free?
No, it is generally taxable.
Do veterans need to show this in ITR?
Yes, it should be reported as exempt income.
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