HOW TO RESOLVE THE TAX EXEMPTION ISSUE OF DISABLED SOLDIERS NOT INVALIDED FROM SERVICE?
- Brig BL Poonia, VSM (Retd)
- 4 days ago
- 7 min read
Editor's Note
The subject of Disability Pension to miltary personnel re-surfaced after a decade for a serious debate across the country.
The Nov 2016 issue of Fauji India Magazine had covered the subject elaborately with objective articles. The present debate has been triggered due to a recent change in the existing Govt policy. While several articles on the subject, conveying different perceptions have already been published, and are under circulation on the social media, this article by Brig BL Poonia gives an overall perspective to the subject, including the recent developments, and the perceived reasons for the same. - Editor, MVI
Fauji India Magazine, Nov 2016 issue PDF
Introduction
I had written two articles on the subject. A few veterans agreed with me, and a few disagreed, but one crossed all the limits of decency and decorum, as if it was I who had recommended the changes in the Finance Bill 2026 to Mrs Nirmala Sitharaman. It was he, who had blamed the government on the frequency of revision of OROP, and when we lost the case in the Supreme Court, he blamed the Supreme Court.
The solution to such issues lies in handling the issue in a matured manner, since maturity is one character quality, which should never be violated just to display emotional patriotism, or to depict the Prime Minister in poor light. However, there are a few veterans who seriously discussed the issue with me at such a great length, that their sheer commitment inspired me to dive deeper.
But the most shocking aspect of the entire episode was the behaviour of a section of veterans who want to cash on this opportunity to project Modi government as anti defence veterans; the government that had implemented OROP, in spite of we having lost the case in the Supreme Court.
Genesis of Debate
The discussion on the subject matter was actuated across the country, due to the proposed amendments in the Income Tax Act 2025 through the Finance Bill 2026, which stated:
● The disability pension (including the service pension) will continue to be exempt from income tax only for the personnel who have been invalided out of service on account of a bodily disability attributable to or aggravated by military service.
● This exemption will not apply to disability pensions received by soldiers who retire on superannuation, or otherwise (including voluntary retirement).
● This would be applicable with effect from 01 April 2026.
Background
The history of exemption of income tax on the disability pension of the soldiers can be traced back to the British Government Income Tax Act 1922. However, the exemption of income tax on disability pensions was not mentioned directly into the Act itself. Instead, it was granted through a Government Notification No. 878-F (Income Tax) dated 21 March 1922, issued under Section 60 of the 1922 Act.
The two relevant paras of this Notification concerning us are:
● Para 28. Pension granted to all defence personnel injured in action or while on duty.
● Para 29. Pension granted to all defence personnel invalided from service on account of bodily disabilities, attributable to military service.
Application of the Act
Post-independence, these provisions of the Notification were carried forward by inserting the same in 'Income Tax Act, 1961' under Section 297: 'Repeals and Savings'.
Subsequently, the following CBDT instructions were issued as departmental guidelines for implementing the same:
● Instruction No 136 dated 14 Jan 1970.
● Instruction No 2/2001 dated 02 Jul 2001.
Bifurcation of Pension
However prior to 1961, there was no concept of bifurcation of pension into the following two different categories, which came into force through Defence Services Regulations for Pension.
● The disability element.
● The service element.
From then onwards it got reflected accordingly in the Pension Payment Orders (PPOs) too.
Manupulation of Disability Pension
Over a period of time, disability pension, accompanied by exemption of income tax, became a very lucrative option, and some of the senior officers (Maj Gens and above) started manupulating the same at the fag end of their service, since the Specialists and Medical Officers working in hospitals under their command found themselves constrained to oblige them. The situation became so alarming that on 16 Dec 2014 the DGAFMS had to write a DO letter to the Defence Secretary requesting him to arrest this trend, that had assumed disproportionate dimensions, setting a wrong precedence.
The Government had been gracious enough to institute 'Post Discharge Claim' for those who left service in SHAPE-1 medical category, but subsequently developed disabilities. But even this provision was misused by a few veterans to claim disability on account of corns in their feet, eczema, high BP, and hearing loss. When denied by the defence medical authorities, they rushed to AFTs/courts. Even this has been mentioned in the DO letter of the DGAFMS.
In a first of its kind case, a retired Major General of the Indian Army was court-martialled and found guilty of falsifying medical records to earn disability pension. He was sentenced to loss of 10 years service for pension in Jun 2019.
A retired Brigadier filed a petition in Delhi High Court to claim disability benefits for an injury sustained in 1973 while attempting to shoot a flock of ducks during 'shikar'. The court dismissed his petition in Feb 2026.
One can go on and on. There are 'n' number of such cases where the officers had stooped low for the greed of money. So it would not be correct to say that the defence officers had no role in the sequence of events that has led to various restrictions being imposed by the Government of India now. For us, the easiest thing is to label the government as anti defence forces, since it sounds convincing by default.
What Prompted the Government Now?
Amid protests over removal of income tax exemption for military personnel retiring on superannuation, it turns out that the decision to bring in new rules originated after a report by the Comptroller and Auditor General (CAG) in 2023, which cited a ‘high number’ of retirees getting disability pension.
After the CAG report came out, the Department of Military Affairs (DMA) formed a panel that included representatives of the three services and the Department of Ex-servicemen. The aim of the study was to protect the genuine interests of pensioners who get disabled during service while preventing the exploitation of its liberal provisions from misuse.
In the report tabled in the Parliament, CAG raised concerns about pensions awarded to officers, especially Army Medical Corps (AMC) officers. The country’s top auditor stated that 36-40 per cent of officers and 15-18 per cent jawans leaving service each year received disability pensions.
The report also noted that 44-58 percentage of officers retiring each year and receiving disability pensions, were AMC officers (doctors). The very fact that the number of AMC officers getting disability pension surpassed the total number of Infantry, Armoured, Artillery and Engineer officers combined together, was not only a matter of serious concern, but a sign of alarming situation.
Moreover, more than 22 per cent officers and 13 per cent jawans were getting disability pensions for lifestyle diseases like hypertension and diabetes, which should ideally be managed/treated.
Ultimately, it was these shocking revelations, that led to reaching the present state of affairs. Facts do not cease to exist just because they are ignored. The question is: "Haven't we the officer class, let our men down, and betrayed their faith?" So let us ask ourselves honestly: To what degree are we justified in blaming the government?
How to Arrest Manupulation of Disability Pension?
Well that is for the government and the defence services to decide, by instituting effective measures like getting the Release Medical Boards of Maj Gens and above, organized in hospitals that are not under their command, including the senior AMC officers. But the genuine cases should not be penalized for the fault of a certain category of senior officers. Unfortunately, we have been caught in a situation of cause and consequence, ignoring which would be detrimental to the organization.
In addition, the lifestyle diseases should be discontinued from being a part of disability, and the system of 'Post Discharge Claim' be streamlined in a manner to prevent its misuse since a war on corruption has become a national imperative.
We cannot see the current issue under debate in isolation, simply by closing our eyes to such rampant cases of corruption taking place in an organization to which the entire nation looks up with a deep sense of gratitude and a high degree of expectations. The defence forces of India are a role model for the entire nation, especially the youth, and it is imperative on our part to live upto their expectations.
Interpretational Debate
And sometime during the end of 2020s, the issue came up, whether a person not invalidated out of service but retired on superannuation, was eligible for exemption of income tax on the disability pension. Since a few veteran officers had approached the courts leading to litigation, it created interpretational debates. As a consequence, the CBDT issued a clarificatory Circular (No 13/2019) stating:
"Disability pension is exempt from income tax only if the individual is invalided out of service on account of disability attributable to or aggravated by military service. If a person continues in service despite disability, exemption would not apply."
Options Available to the Veterans
My personal opinion is that we should appeal to the government for granting income tax exemption to both the categories covered under Paras 28 and 29 of the Notification, that is whether one is invalided out of service, or retires on superannuation. Simultaneously the misuse of these provisions by a section of senior officers must be curtailed ruthlessly, since the genuine cases should not suffer for the fault of a few unscrupulous elements.
Moreover, we should avoid getting into litigation, since it might stretch over for more than a decade. Even in a simple case like frequency of revision of OROP, which required the correct interpretation of its one-line definition, it took the Supreme Court five years and nine months. The legal aspects of the question are highly complex. So it is not worth getting sucked into the whirlpool of litigation.
In fact, the ideal way to resolve the issue amicably would be, that at least one veteran Service Chief each from Army, Navy and Air Force, alongwith the President of Indian Ex-Services League, should have a meeting with the Defence Minister and the Finance Minister, and thereafter if possible, even with the Prime Minister. That would have a far more greater impact than opting for litigation. Just condemning or cursing the government through articles, or circulating videos on social media, admonishing the government in a sensationally scary tone, would lead us to no where.
Conclusion
While no amount of money or material benefits can compensate the loss of limb, life, or sacrifice of a soldier, the symbolic gesture of exempting the income tax would certainly keep the spirit and morale of the soldiers high. It would act as an assurance that the nation respects, reciprocates, values and honours the sacrifices of its soldiers. It will keep their morale high, and morale is one of the principles of war.