Income Tax Exemption for Pensionary benefits

Indian Military Veterans

Dear Veterans

Information, specific to Tax Exemption is reproduced below:-

The tax exemption of disability pension received by  Armed Force Personnel  are among those  exemptions under Income Tax Act for which you may not get a direct reference in  the Income Tax Act. However ,  such tax exemption are allowed by the executive instruction by either Finance Ministry notification or under the delegated powers to CBDT . Armed Forces personnel get the disability pension which is basically aggregate of two components-disability pension and service pension. Previously , thsi website had posted 3 Types of Pension to Armed Forces Completely Tax Free!

Disability Pension to Armed Forces : What is it ?

As per the website of Principal Controller of Defence Accounts (Pension), where an Armed Forces Personnel is invalided out of service, which is accepted as attributable to or aggravated by military service, he shall be entitled to disability pension consisting of Service Element & Disability Element as follows:-

Service Element

The amount of service element shall be determined as 50% of less emoluments drawn as given in para 6 of MOD letter dt- 12.11.2008 which is subject to minimum Rs 3500/- p.m.

Disability Element

·         The rates of disability elements for 100% disability for various ranks shall be 30% of emolument last drawn subject to Rs. 3510/- per month.

·         Disability lower than 100% shall be computed by reducing proportionately.

Disability Element on Invalidment

Where an Armed Force personnel is invalided out of service under circumstances mentioned in para 4.1 of Govt. letter dt. 31.01.01, the extent of disability shall be determined as follows for the purpose of computing the DE :- Percentage as finally assessed by Competent Authority Percentage to be reckoned for computing DE Between 1 to 49 50 Between 50 & 75 75 Between 76 &100 100

Disability Element on Retirement/Discharge

Where an Armed Forces personnel is retained in service despite disability and subsequently retired/ discharged on completion of tenure or on attaining the age of retirement, he shall be entitled to Disability Entitlement at the rate prescribed for 100% disablement. For disablement less than 100% but not below 20%, the rates shall be reduced proportionately. No disability element shall be payable for disability less than 20% .

Is Disability Pension to Armed Forces Tax Free ?

Yes, although there is nothing in section 10 of the Income Tax Act , which is a general exemption section  under Income tax Act , the disability pension has been made tax free through Finance Ministry notification No 878-F (Income Tax) dated 21-3-1922 . The following instruction from CBDT explains that the entire disability pension is exempt

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

From :Shri S N NautialSecretary, 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 inyour charge.

Yours faithfully,Sd/-
(S N Nautial)
Secretary ,CBDT

Confusion on Exemption Disability Pension & Service Element

As the disability pension is aggregate of two elements- disability element and service element- a confusion was created in filed formation of tax authorities , whether the disability element only is tax free and not the service element. CBDT , therefore , in order to wipe out any confusion , issued another instruction F. No. 200/51/00-ITA-1 dt. 02.7.2001 to stress that both element of disability pension is tax exempt. Read the instruction below :

[F. No. 200/51/00-ITA-1 dt. 02.7.2001 from Ministry of Finance Deptt. Of Revenue Central Board of Direct Taxes, New Delhi.]

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.

Reference 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 in spite of Board’s Instruction No.136 dated 14th January, 970 (F.No.34/3/68-IT(A.1)).

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 bought to the notice of all the officers working under you.

Sd/-
B.L. Sahu
Officer on Special Duty (ITA .1)

No TDS on Disability Pension to Army Personnel

As it happens in India, everyone becomes the super authorities against the common man. The government received complaint that certain banks are deducting the tax on the disability pension . So , government issued a press release that no TDS is required on the said disability pension paid to Armed Forces personnel. Read below the  excerpt.

Press Release, dated 20-12-2007

It has been reported in the press that some banks were deducting tax from pension of disabled ex-servicemen in violation of Government instructions.
RBI was requested to have the matter investigated and remedial action taken. After examination, RBI discovered that in one specific instance, due to oversight, the pensioner’s disability pension was wrongly taken into account while calculating income-tax.

RBI has issued instructions to all agency banks to strictly adhere to the provisions of para 88.3 of Defence Pension Payment Instructions, 2005, regarding exemption of income-tax of the disability pension of the pensioners of Armed Forces. Banks have been advised to issue suitable instructions to all their pension disbursing branches that income-tax should not be deducted from the disability pension paid to the pensioners of the Armed Forces.

Conclusion

The disability pension given to Armed Forces Personnel are having two components-disability element & service element. Both are tax free vide Ministry of Finance notification read with clarification from CBDT and also there can not eb any TDS as the amount is fully tax free

3 Types of Pension to Armed Forces Completely Tax Free!

   

Armed forces of this country –be it Army, Navy, Air Force or CRPF or BSF and others are doing great service in the most difficult circumstances. As a mark of respect to them, this blog publishes article on tax issues and completely free to read.  I have already published two of the related posts – disability pension to armed forces and Pensions received by certain awardee. However, the kind of feedback, it is considered necessary to post a consolidated post on the subject of tax free pensions to Armed Forces Personnel.

Disability Pension is Tax Free & TDS Free!

Armed Forces personnel get the disability pension, which is aggregate of two components-disability pensions and service pension. On the question of its being tax free, the first thing to note is the fact that the tax exemption on the disability pension is not provided under section 10 or anywhere in the Income Tax Act. The disability pension has been made tax-free by executive instructions of the government.

You can read on this issue on the post titled No Tax or TDS on Disability Pension to Armed Forces

Pension Received by Gallantry Award Winners or His Family

The pension received by gallantry award holder and also family pension received by the member of the family of gallantry winner’s is tax free as per section 10(18) of the Income Tax Act . , Read the provision below :

 10 (18)any income by way of—

(i)  pension received by an individual who has been in the service of the Central Government or State Government and has been awarded “Param Vir Chakra” or “Maha Vir Chakra” or “Vir Chakra” or such other gallantry award as the Central Government may, by notification⁷⁷ in the Official Gazette, specify in this behalf;

(ii)  family pension received by any member of the family of an individual referred to in sub-clause (i).

Explanation.—For the purposes of this clause, the expression “family” shall have the meaning assigned to it in the Explanation to clause (5);

 Section 10(18) l Gallantry Award Notification

No. SO 1048(E), dated 24-11-2000, as amended by Notification No. SO 81(E), dated 29-1-2001.
119. Income by way of pension received by an individual who has been in service of Central Government or State Government and has been awarded any gallantry award
In exercise of the powers conferred by sub-clause (i) of clause (18) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies the gallantry awards for the purposes of the said section, mentioned in column 2 of the table below awarded in the circumstances as mentioned in corresponding column 3 thereof.
Sl. No.	Name of gallantry award	Circumstances for eligibility
1	Ashok Chakra	When awarded for gallantry.
2	Kirti Chakra	– do –
	Shaurya Chakra	– do –
	Sarvottam Jeevan Raksha Padak	When awarded to civilians for bravery displayed by them in life saving acts.
5	Uttam Jeevan Raksha Medal	– do –
	Jeevan Raksha Padak	– do –
	President’s Police Medal for Gallantry	When awarded for acts of exceptional courage displayed by members of police forces, Central police or security forces and certified to this effect by the head of the department concerned.
8	Police Medal for Gallantry	– do –
	Sena Medal	When awarded for acts of courage or conspicuous gallantry and supported by certificate issued to this effect by relevant service headquarters.
10	Nao Sena Medal	– do –
	Vayu Sena Medal	– do –
	Fire Services Medal for Gallantry	When awarded for acts of courage or conspicuous gallantry and supported by certificate issued to this effect by the last Head of Department.
13	President’s Police and Fire Services Medal for Gallantry	– do –
	President’s Fire Services Medal for Gallantry	– do –
	President’s Home Guards and Civil Defence Medal for Gallantry	– do –
	Home Guards and Civil Defence Medal for Gallantry	– do –

                

 What is the Meaning of Family For Exemption Purpose

The meaning of family members is Explained under Section 10(5) of the Income Tax Act .

(i)             the spouse and children of the individual ; and

(ii)           (ii)the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual

  Pension for Death on Duties of Armed Forces Personnel

Section 10(19) of the Income Tax Act provides that amount of pension received by the family members of armed forces personnel including Para-,military personnel who dies in certain circumstances in course of performing his /her duties , shall be tax free . The excerpt of the provision is given below :

(19)        family pension received by the widow or children or nominated heirs, as the case may be, of a member of the armed forces (including paramilitary forces) of the Union,where the death of such member has occurred in the course of operational duties, in such circumstances and subject to such conditions, as may be prescribed

 What are Condition Prescribed ?

Section 10(19) speaks of exemption of family pension when the death of Armed Forces or Para-Military personnel – has occurred in the course of operational duties in certain Circumstance which is prescribed in Rule 2 BBA

 (i) acts of violence or kidnapping or attacks by terrorists or anti-social elements;

(ii) action against extremists or anti-social elements;

(iii) enemy action in international war;

(iv) action during deployment with a peace keeping mission abroad;

(v) border skirmishes;

(vi) laying or clearance of mines including enemy mines as also mine sweeping operations;

(vii) explosions of mines while laying operationally oriented mine-fields or lifting or negotiation minefields laid by the enemy or own forces in operational areas near international borders or the line of control;

(viii) in the aid of civil power in dealing with natural calamities and rescue operations;

(ix) in the aid of civil power in quelling agitation or riots or revolts by
demonstrators.

What Precaution Must Be taken for Exemption Deceased Family ?

As per Rule 2BBA (2), obtain a certificate  from the Head of the Department where the deceased member of the armed forces(including paramilitary forces) last served, or the service headquarters, as the case may be, that the death of such member has occurred in the course of operational duties in circumstances mentioned above 

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 The Information book let from Army Hq web site is attached. Please refer to the page 14 of the book let for the Income Tax Exemptions allowed on Pensionary benefits.

You may down load the book let from the following link as well.

http://indianarmy.nic.in/Site/FormTemplete/frmTempSimple.aspx?MnId=CvzKCekA0xpyQLhgh+g/WQ==&ParentID=3+PwPfbjPMs+pkoiYmzWwg==