The circular issued by the Central Board of Direct Taxes (CBDT) on Monday said the disability pension given to military personnel will be taxable unless they have to leave the service due to the disability sustained in service.
The order said tax exemption for disability pension will be “available only to armed forces personnel who have been invalidated from 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.”
Facing criticism, officials justified the order on Tuesday by stating that those personnel who retire after serving full tenure with some disability will not get income tax exemption. Stating that this was always the case, they said there are instances where income tax exemption was availed by those who retired with disability and the latest order clarifies the position.
They also said there were some cases in the past when some personnel misused the exemption scheme to avail the disability pension while nearing retirement. Personnel who suffer 100 per cent disability or up to 50 per cent, they leave the service unable to serve and get lifelong tax-free pension based upon their rank and last salary drawn, officials said.
Disability pension is of two types, war and normal. War disability is 60 per cent of the last salary drawn in case of 100% disability and normal disability is 30 per cent of the last salary drawn in case of 100% disability.
Till now both were not being taxed if the disability is decided by a team of doctors, some service personnel said adding there are some ambiguities in the CBDT notification. It is not stated from when it would be effective, they said adding it was also not clarified in the order whether pension will be taxed with retrospective or prospective effect.
The move has raised criticism amongst the armed forces which are already unhappy over several recent measures seen as lowering their status and equivalence compared to their civilian counterparts. One officer termed it as “reinterpreting” of the rules by the Finance Ministry. Taken aback by the latest directive, services personnel, serving and retired, said the disability takes place while fighting for the country and there was never any taxes on disability earlier.