A provision in the Finance Bill 2026 that seeks to provide income-tax benefits only to soldiers invalided out of service due to disabilities attributable to or aggravated by service, and exclude those who served and superannuated with disabilities, has triggered resentment in some military circles, with several veterans wading into the debate, saying the discrimination is unjustified and has created two classes of disabled soldiers.
Some Opposition parties have also criticised the development during the ongoing Budget session of Parliament.
The bill proposes providing an express statutory exemption from disability pension in cases where an individual has been invalided out of service on account of a disability attributable to, or aggravated by, such service.
“However, the said exemption shall not be available where the individual has retired from service on superannuation or otherwise,” it says.
On Wednesday, AIMIM MP Asaduddin Owaisi launched a sharp attack on the government during the general discussion on the Union Budget in Lok Sabha over the withdrawal of tax benefits for disabled soldiers. This came a day after Congress MP Shashi Tharoor raised the issue in the Lok Sabha, calling it a disturbing development.
“This move weakens social protection for disabled veterans who have risked their lives for our country and draws an indefensible line between service-related disabilities and abdication of the state’s moral duty to those who have made such sacrifices for the nation,” Tharoor said.
Several veterans have called for a review of the provision.
On Tuesday, former army chief General VP Malik (retd) said he hoped the government would review the removal of tax exemptions for disabled soldiers who serve and superannuate.
“If disabled, soldiers are allowed to continue service only after a med board approval. Some such soldiers, when disabled as young officers, have risen to the rank of Maj Gens & Lt Gens, including one Vice Chief. This new discrimination is unjustified & uncalled for,” he wrote on X, in response to a post on the matter.
As per the CBDT circular dated June 24, 2019, disability pension is exempt from income tax only in those cases where a service member is invalided out of service before completion of his regular service for medical reasons attributable to or aggravated by service conditions, defence ministry officials said on Wednesday.
“This clarification is based on the Income Tax Act 1922 and 1961. However, this provision was loosely interpreted to provide benefits even to those personnel who were not invalided out of service and who completed their normal service but retired in a low medical category. These LMC cases are not covered under the IT exemption as they continue to remain in service,” said one of the officials, asking not to be named.
Such persons who complete their service do not get disability pension, but receive service pension plus disability element (which is now called Impairment Relief as per Entitlement Rules 2023 to remove the confusion of equating it with disability pension), but they are not exempt from income tax, said another official who also asked not to be named. “This has now been clarified further in the new Finance Bill under consideration.”
The revised policy, Entitlement Rules for Casualty Pension and Disability Compensation Awards to Armed Forces Personnel, 2023 and Guide to Medical Officers, came into effect on September 21, 2023. It aligns with the Rights of Persons with Disabilities Act, which came into force in 2017, people aware of the matter said.
The government notified the new rules in September 2023, five months after the Comptroller and Auditor General (CAG) told the defence ministry to analyse the reasons for disability among soldiers following its finding that almost 40% of officers, and 18% of personnel below officer rank (PBOR) who retire every year were drawing disability pension.
The national auditor examined disability pensions disbursed to personnel discharged from service during 2015-2020.
The new rules governing disability pension will safeguard the legitimate interests of people who acquire disabilities during service, prevent the misuse of liberal provisions, help run the armed forces efficiently, ensure battle readiness and encourage physical fitness across the board, chief of defence staff General Anil Chauhan said at the time.
(With inputs from Adrija Datta)
