Which armed personnel are eligible for tax exemption on disability pension?
Was the provision of disability pension not part of earlier Income Tax Acts?
Was the codification of tax exemption rule on disability pension for armed forces personnel necessary?
What is disability pension for armed personnel forces?
Members of armed forces receiving a disability pension will keep enjoying income tax exemption under the Income Tax Act , 2025.Although these personnel had tax exemption earlier also, but the new Income Tax Act, 2025 did not explicitly mention this tax exemption, leading to some confusion.To resolve this issue and align the new 2025 Act with the old Income Tax Act, 1962, an amendment was introduced in the Finance Bill, 2026. This is the first time when the government has chosen to codify the rule for disability pension in the Income Tax Act itself, as prior to this, the tax exemption was introduces by way of a circular.Nemin Shah, director, EQX Business Consultancy Private Ltd, told ET Wealth Online that the government has chosen to codify the exemption for disability pension (including the service element) paid to officers who have been invalided out of Armed Forces in the law itself by introducing an amendment to the Income Tax Act, 2025.“While doing so, they have carved out one exception - disability pension (including the service element) is paid to officers who have continued to serve and receive disability pension subsequent to superannuation,” says Shah.Shah explains that even though the Supreme Court has granted disability pension to officers who have continued to serve, tax exemption is available only to officers who are invalided.“It is hoped that this will be reconsidered and appropriate change will be made in the future,” says Shah.Invalided Armed Forces personnel are those who have been discharged from their military service on account of physical disability.Shah says there has been no specific provision within the tax law (1922 or the 1961 Income Tax Act) for the exemption of disability pension paid to armed forces.“There had been instructions and circulars for the same under the 1922 Act and the 1961 Act. Ideally, the circular issued under the 1961 Act in 2019 would continue to be applicable under the 2025 Act under transitional provisions,” says Shah.Explaining the situation, the government with the enactment of the Income-tax 2025, which will be effective from April 1, 2026, the Income-tax Act, 1961 will be repealed and consequently earlier enactments pertaining to Income-tax Act, 1922, and related savings provisions in the Income-tax Act, 1961, will cease to operate.“Therefore, in the absence of an express provision in the Income-tax 2025, the exemption provided for disability pension would have lapsed.This provision was included in the Finance Bill 2026, to ensure the continuation of the same exemption that existed earlier, including its scope and condition, says the government in its memorandum explaining the provisions of amendments to the Finance Bill 2026.The government says that since the matter is sub-judice, it had created certain implementation issues, therefore, the present amendment is being made to address practical issues.As per the Department of Ex-serviceman Welfare website, disability pension is granted in invalided out cases due to disability attributable to or aggravated by military service. It consists of disability element and service element.Service element is equal to the retiring pension, i.e., 50% of the reckonable emoluments last drawn. Disability element would be 30% of reckonable emoluments last drawn for 100% disability.For lesser percentage of disability, the amount of disability element is reduced proportionally.No disability element is payable for disability assessed as less than 20%.In other than invalided out cases, disability element is granted for disability attributable to or aggravated by military service, in addition to service pension, if otherwise admissible.