The entire pension, that is, service element (service pension) and disability element of disability pensioners is exempted from the purview of Income Tax. Disability Pension comprises of two elements, service element that is granted in terms of the length of service (subject to a minimum amount in cases where service rendered is less than pensionable service), and disability element which is granted in terms of the percentage of disability. There is no minimum qualifying service prescribed for service element or disability element, hence even if a person has a single day of service, he or she is entitled to disability pension. For individuals who have completed their minimum qualifying service for pension, their service pension becomes the service element for purposes of disability pension. Both elements are exempted from Income Tax and so are the arrears of both elements. The same has been clarified by the Ministry of Finance, Department of Revenue vide Instruction No 2/2001 dated 02 July 2001 and Instruction No 136 dated 14 January 1970, both of which can be viewed below.
Instruction No 136
Govt of India
Central Board of Direct Taxes
New Delhi, dated the 14th Jan 1970
From :Shri S N Nautial
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.
1.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 in your charge
(S N Nautial)
Instruction No 2/ 2001
Govt of India
Ministry of Finance
Deptt of Revenue
Central Board of Direct Taxes
New Delhi, the 2nd July, 2001
All Chief Commissioners of Income-Tax
All Directors General of Income-Tax
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
1.References 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 1970 (F No 34/3/68-II(AI) ).
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.
(B L Sahu)
(Source Via e-mail from Col Ajit Singh Rana, Retd.
Monday, February 1, 2016
INCOME TAX EXEMPTION ON DISABILITY PENSION : ARMED FORCES PERSONNEL
INSTRUCITON NO 2/2002
F. No. 200/51/99-ITA Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi. The 2nd July, 2002.
All the Chief Commissioners of Income - tax,
All the Directors General of Income-tax,
SUBJECT: Exemption from income tax to disability pension “disability element” and “ service element” of a disabled officer of the Indian Armed Forces – Instructions
1. Reference have been received in the Board regarding exemptions income tax to disability pension i.e. “disability element” and “service element” of a disable officer of the Indian Armed Forces.
2. It appears that field formations in certain cases are not unitary allowing disability pension in spite of Boards – Instruction No 136 dated 14th January, 1970 [F.No.34/3/68-IT(A.I)
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 Army Forces contains be exempt from income tax.
4. This may be brought to the notice of all the officers working under your charge.
Income Tax Exemption - IT Exemption on complete Disability pension