Disability pension- (CBDT) circular of June 24 on the latest ruling on taxation of disability pension

Maj Gen Amrit Pal Singh (Retd)
Military commentator

The e-space is abuzz with opinions and interpretations of the Central Board of Direct Taxes (CBDT) circular of June 24 on the latest ruling on taxation of disability pension to the armed forces personnel. The furore it has created in the military and veteran circles is not something that the prudent should ignore or relegate as background chatter. 

The circular in question refers to the Income Tax Act 1922 and notification number 878-F of March 1922, among other sections and instructions, issued from time to time. The missive clarifies that income tax exemption would be available to all armed forces personnel (irrespective of rank) who have been invalided out of such service on account of bodily disability attributable or aggravated by such service. 

In the last paragraph, the letter drops the bombshell by stating that such tax exemption will be applicable only to those personnel who have been invalided out of 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.

The rigours of military service are known to all and there is no questioning the extreme conditions of service that obtain in various facets and areas where personnel are deployed in the defence of the country. The very fact that the law caters for disability is proof of the recognition of the need to compensate a serviceman or woman for the bodily disability attributable or aggravated by her or his service. 

The latest circular now intends to clarify the applicability of taxes on the disability pension and, in effect, creates different classes of disability for purpose of taxation. A few at a glance are: 

First, the disability that causes a soldier to be invalided out of service as the disability was so severe that they could not serve in the forces due to it. 

Second, the disability that is caused due to service but the individual is yet capable of serving (albeit under restrictions due to medical reasons) in what is called a ‘medical category’ in military parlance. 

The third class now formed is that of those personnel who had attributable or aggravated disability and chose to leave service prematurely.

The now-formed third class of disabled soldiers, in all probability, may have opted out of service due to the limited terms of service the medical category offered them or purely out of soldierly pride not allowing themselves acceptance of any concessions when they expect the troops they command to undertake all tribulations. Their disability in no measure is less attributable as, for example, the case of a soldier deployed in the icy heights of Siachen who suffers from pulmonary oedema and is downgraded to a medical category that does not allow him to serve in extreme areas thereafter — he has an option to remain a medical category for all of his service and feel like a ‘second grade’ soldier for no fault of his or to leave service honourably. These soldiers are no less deserving of disability pension and taxing it now could have ramifications on risk-taking decisions by soldiers. There is a need by the government to look at the larger picture.

However, it is the second category now created by the circular that has the military fraternity up in indignation.  The armed forces look after their own and especially their heroes who are incapacitated due to operations and even in peace time service. The case of a vehicle mechanic who lost his limb due to a vehicle toppling on him when he was repairing it is no less attributable than that of a soldier who gets shot by the enemy or terrorist and is termed a ‘Battle Casualty’. These individuals are considered on a case-to-case basis and permitted to serve their full tenure. It is a matter of pride that some of such heroes have risen to top ranks and are held in deep regard by the military fraternity. 

The new condition set out in the circular seemingly denies the exemption of tax to the disability pension of these soldiers. 

The case of General Ian Cardozo who self-amputated his leg during the 1971 operations is a sterling example of raw courage by an officer who served with great pride and who is a hero to this day. But the Indian government now will tax his sacrifice. How prudent is this recovery of tax from the disability pension of a person who never thought about severing his own limb for the security of the country? His words ‘There is not apathy from the bureaucratic circles but antipathy’reverberate profoundly amongst the military circles and will find resonance in many a self-respecting patriotic Indian. 

The average citizen needs to be aware of the ever-increasing animosity being generated by seemingly innocuous steps initiated by the government. The recent news of the government seeking resignations of commanders of military bases that were attacked by terrorists has been reportedly identified as a selective leak from the ministry as the recommendation to this effect was earlier too resisted and disposed of by the armed forces.  Was the leak intended to rake up the issue afresh with the new Defence Minister? 

Similar is the case of the orders of opening of cantonment roads by a missive from the ministry which created a messy debate with accusations of political favours and selective decision-making aggravating the fissures in a strained civil bureaucracy-military relationship.  

The present CBDT circular seems to be yet another instance in the same vein as with numerous other pinpricks such as OROP and ration money disallowment and its subsequent reinstatement.

The cases of tax evasion in all other spheres of economic and financial activities are something which needs to keep the attention of the tax lawmakers. It is not without ample reason that the present circular has been initiated to plug loopholes being exploited in the taxation of disability pension in cases of misrepresentation and misuse by the military hierarchy but such cases must be dealt with departmentally and applying such a broad-brush instruction needs to be well thought out. 

The armed forces, on their part, have to clearly differentiate those cases of disability attributable to and aggravated by military service and unambiguously lay down the criteria for grant of disability pension. Once the disability is granted, it must be honoured by bureaucrats and ministries alike as a service to the nation which must not be taxed.