Explained: Why the disability pension tax upsets veterans


The government withdrew a February 20 circular directing banks to deduct retirement and disability benefits paid to retired military personnel with disabilities from income tax. This was based on a letter dated June 24, 2019, by which income tax was levied. Although the letter provided for an exemption for those disabled from service due to bodily disabilities, the banks’ sudden deduction of tax obligations sparked public outrage, forcing the government to keep the decision in abeyance. The defense accounts department has been ordered by the government to withdraw the circular of February 20.

What are the categories of disabled veterans?

They are classified into three categories: the wounded in combat (war wounded), the wounded in combat and the incapacities due to the conditions of service. Service members who have been incapacitated due to wounds or injuries sustained during operations with the enemy or terrorists / insurgents or similar operations are war wounded (war wounded), while the personnel who have been declared a victim of battle but have not sustained physical injuries are classified as combat casualties. The third category concerns staff who have been disabled due to conditions of service, in which certain disabilities related to lifestyle-related illnesses are also included.

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How are benefits granted to disabled staff?

Benefits are based on the percentage of disability: less than 20% disability is not entitled to any benefit while people with 21% to 50% disability are classified in the 50% disability category, those with between 51 and 75% disability are classified in the 75% category. disabled, and those with 76% or more disability are classified as 100% disabled.

The amount of the invalidity pension is based on two categories. The first rate applies to war wounded (war wounded) and combat casualties: For 21% to 50% invalidity, 30% of the last pay paid is paid as invalidity pension; for 51% to 75% disability, 45% of the last pay; and for 76% more disability, 60% of the last salary drawn at retirement is paid as disability pension.

The second rate applies to staff disabled due to service conditions: For 21% to 50% disability, 15% of the last salary received is the disability pension; for 51% to 75% disability, 22.5% of the last pay; and for 76% more invalidity, 30% of the last salary withdrawn at retirement is paid as invalidity pension.

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Are these disability pensions tax exempt?

The entire pension and disability component of the pension in all categories is exempt from income tax. But the notification from the Central Commission of Direct Taxes (CBDT) of June 2019 indicated that the tax exemption on the disability pension would only be accessible to staff who had been disabled and not to staff who had otherwise retired. . This was challenged in the Supreme Court which, in an order dated August 30, 2019, ordered all parties to maintain the “status quo” on the matter.

What is the current controversy about?

Senior Defense Auditor Allahabad on February 20 issued a circular for “necessary action” on the June 2019 CBDT notification to deduct income tax from the pensions of disabled soldiers. The State Bank of India then began to withhold withholding tax for the entire 2019-2020 fiscal year on the February pension of retired military personnel who were receiving a disability pension. This has led to several retirees receiving as little as Rs 1000 in their accounts.

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