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Income Tax on Widows/ Families of Physical Casualties too?

No one is actually concerned for cases that genuinely need to be exempted from IT – the Widows of Physical Casualties whose husbands are deceased and get lesser pension than others.  There is a need to take up case with the concerned authorities to incorporate IT Exemption to Armed Forces personnel with disabilities due to Operational/War injuries and Family Pension of NOK of Physical Casualties also included in the IT Act 1961 as a permanent measure and in the meantime issue fresh and unambiguous CBDT Circular for immediate implementation.

by Brig R. Vinayak (Retd) (from August 2019 issue)

There is a lot of hue and cry about clarification issued by the Ministry of Finance, Central Board of Direct Taxes (CBDT) vide their Circular No 13 /2019 dated 24 Jun 2019 on applicability IT Exemption on Disability Pension (i.e. Disability Element + Service Element). The people making noise and wailing are mainly the ones who are beneficiaries (mainly officers) who have retired on superannuation or otherwise with disability. Some mainly singing in tune for the sake of appeasing and showing concern for those who are feeling victimised.

Social media as well as print and electronic media is full of reports debating this issue. Many very senior Veterans including War Veterans like Gen Ian Cardozo have expressed their angst on the withdrawal of blanket IT Exemption on Disability Pension vide earlier CBDT Circulars. There has always been a doubt in the minds of some about the applicability of IT Exemption on Disability Pension – whether only the Disability Element is exempted or is such exemption on complete Disability Pension? I have seen such queries on many Veterans’ WhatsApp/email groups.

Queries have also been raised on applicability of IT Exemption to JCOs/OR as in earlier circulars it was specifically mentioned that exemption was only for officers. In this regard extract of Ministry of Finance, Department Of Revenue, Central Board of Direct Taxes (CBDT), New Delhi Instruction No F. No. 200/51/00-ITA-1 dated 02 Jul 2001 is reproduced as follows:  

“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-IT [A.1]). 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.”

Consequent to 6th Central Pay Commission and implementation of Modified Assured Career Progression (MACP) to JCOs / OR and equivalent ranks of Armed Forces, income of many personnel below officer ranks became taxable under the IT Act 1961. The initial IT Exemption vide Notification No 878-F dated 21 Mar 1922 was meant only for all members of the Armed Forces who were invalided out from service on account of bodily disability attributed to or aggravated by Military Service. Thereafter, as already mentioned that it was reiterated vide Instruction No 136/1970 dated and Instruction No 2/2001 dated 14 Jan 2001 that entire Disability Pension (Disability Element + Service Element) of a disabled officer of the Armed Forces continues to be exempt from IT under IT Act 1961. Furthermore, CBDT received representations seeking clarification whether applicability of  IT Exemption was only for officers or all disabled Armed Forces Personnel (ie including officers and jawans) as well as clarification from the environment were sought whether IT Exemption should be restricted only to such disabled Armed Forces Personnel who are invalided out due to disability attributed to or aggravated by military service conditions or even to those who retire after full service with some disability.

The CBDT has in their Circular No 13/2019 in F. No. 173/250/2019 – ITA-1 dated 24 Jun 2019 ruled that IT Exemption will be available to all ranks of the Armed Forces who have been invalided out of service on account of bodily disability attributed to or aggravated by military service and not those who have retired on superannuation or otherwise. With this background it is rather naive to conclude that the Service HQ or for that matter the Army Chief has made any  recommendation that prompted CBDT to issue Circular No 13/2019 dated 24 Jun 2019.

This Circular is still not clear on the aspect of disability due to Operational / War Injuries which necessarily needs to be differentiated from other causes of disabilities. In my opinion, instead of casting aspersions on the Army Chief, the environment needs to understand and build narrative in the right perspective by objectively analysing the issue and widening the scope of IT Exemption so that disabilities due operational/war injuries and Family Pension of Next of Kin (NOK) of Physical Casualties also are specifically mentioned in the text of the CBDT Circular with no ambiguity at all. Internally the Service HQ should evolve and institutes checks and balances to ensure that only genuine cases are granted Disability Pension depending on the severity of bodily handicap. IT Exemptions Specifically Available to Armed Forces Personnel are given in the succeeding paragraphs.

Section 10(18) of Income Tax Act 

“Pension received by certain winners of gallantry awards. Individual who has received any of the gallantry awards stated below will have to pay no taxes on their pension: 

  • Service to central or state government.
  • Awarded ‘Param Vir Chakra’ or ‘Mahavir Chakra’ or ‘Vir Chakra’ or such other notified gallantry awards. Also, any amount received as a family pension by any member of the family of such an individual will also qualify for exemption u/s 10(18).

Section 10(19) of Income Tax Act

“Family pension received by the widow or children or nominated heirs of a member of the armed forces (including paramilitary forces) where the death of such member has occurred in the course of operational duty is fully exempt. W.E.F 01/04/2005.”

Deduction under section 80U. Section 80U of the Income Tax Act, 1961 includes provisions for tax deduction benefit to individual taxpayers suffering from a disability. In order to claim tax deduction under section 80U, the individual must be certified as a person with a disability by appropriate medical authority. ho is a person with a disability? As per the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1955, individuals suffering from any of the following ailments with minimum 40% impairment will be considered as disabled: Blindness, low vision, leprosy (cured), hearing impairment, locomotor disability, mental retardation, mental illness, autism, cerebral palsy. The disability act also provides a definition of severe disability which refers to the condition where the disability is 80% or more. A person suffering from multiple disabilities will also be considered as severely disabled.

Deduction Limit under Section 80U 

“If a person is suffering from at least 40% disability, he/she can claim a tax deduction upto Rs 75,000 on the taxable income under section 80U.”

Person with Severe Disability 

If a person is suffering from severe disability i.e suffering 80% disability (either from one or multiple ailments) can claim a tax deduction upto Rs. 1.25 lakh under section 80U.

Documents Required to Claim Tax Benefits Under Section 80U

Apart from the disability certificate issued by a medical authority, there are no other documents required for claiming tax deductions under section 80U. However, in case of illness such as autism and cerebral palsy, Form 10-IA additionally needs to be filled up.

What is the difference between section 80DD and section 80U?

Although both the sections provide income tax deduction on the grounds of disability, the beneficiaries under the respective sections are different. Under section 80U, individual suffering from a disability can claim for tax deductions for self only. While under Section 80DD, dependant family members of the individual suffering from the disability can claim the tax deduction. Here, dependant family members include spouse, children, parents, siblings of the disabled person.

Thus it can be seen from the above IT Act provisions that Tax Exemption has been extended to Gallantry Awardees and their families, Next of Kin (NOK)/Widows of Armed Forces Personnel who die in operations. There is also a provision of Deduction under Section 80U for Disabled persons that is available for taxpayers. Those Armed Forces Personnel who retire with genuine bodily disability are at liberty to claim this deduction till such time the issue is resolved with the CBDT.

Are those championing the cause of Exemption of IT aware that any disabled citizen gets the minimum Rs 75,000/- deduction under Sec 80U of IT Act. Whereas Disability Element for 100% Disability is Rs 60,000/- for a Pension of Rs 1,00,000/- and that for 50% disability is Rs 30,000/- for disability of 50%. So in any case people with genuine Disability are as such getting Income Tax rebate. On the other hand Widows/dependents of Physical Casualties getting Special Family Pension (SFP)/Ordinary Family Pension (OFP) are being taxed but no one is raising a hue and cry for these Widows of our fallen brethren? I have analysed the whole issue and feel that the entire issue is being fuelled by those who manipulated disability by exploiting the loopholes in the system. Yesterday’s newspaper report staying that 50% of doctors in the Armed Forces are availing Disability Pension to me sounds true.

I was rather taken aback when the security guard of my colony asked me – “साहब, सुना है कि आप को अब तक  पेंशन पे कोई टैक्स नहीं देना पड़ता था लेकिन अब सरकार आपसे टैक्स लेगी क्या?” I was amazed at the misinformation spread in the environment. Such misinformation and slanderous comments against none other than the Army Chief is most unwarranted and detrimental to the discipline and morale of the rank and file of the Armed Forces. I am sure the people across the border must be rejoicing.

A Col who retires with even 20% disability is expecting IT Exemption on complete Disability Pension (ie Disability Element (30000) + Service Element (say 1,00,000) whereas their counterpart who retire in ‘shape one’ medical category pay IT on their pension equivalent to the Service Element of Disability Pension. The CBDT Circular of 24 June 2019 has in no way denied Disability Pension to those who retire with bodily disability attributed to or aggravated by Military Service. The TV prime time debates on removal of IT exemption on Disability Pension of those who retire on superannuation had eminent Veterans including war heroes and legal luminaries participating in the panel discussion.

Surprisingly, none of them made any mention of the fact that no tax was being paid on complete Disability Pension including a major chunk comprising the Service Element but everyone spoke of Disability Element (the smaller component of disability pension) getting reduced due to removal of IT exemption. Even on social media the conversation is spotlighted on the smaller component of Disability Pension and silence maintained on the major part (Service Element). Those who are invalided out from service could not complete their full service; thus, get much lesser pension than those who retire after superannuation as their pension is fixed at lower pay scale at the time of being invalided out.

Those invalided out cannot take up any post retirement assignment due to their disability. Moreover, those not invalided out and continue to serve in Low Medical Category are not exempted IT on the pay and allowances they draw (unless they come under the category of exemptions under Section 10 of the IT Act 1961 applicable to them) till date of superannuation like others. On superannuation, those granted Disability Pension get ‘Disability Element’ in addition to the pension granted to them which is termed as ‘Service Element’ component while all others (unless exempted under Section 10 of the Act 1961 such as gallantry awardees and family pensioners of those who die in operations/war) are liable to pay Income Tax.

The IT Exemption on complete Disability Pension granted on superannuation accrued substantial financial gain over normal retiring pension that it has become lucrative to become a Low Medical Category (LMC) before retirement and bid for (or manipulate) grant of disability pension at the time of retirement. This has been exploited by many at higher ranks especially the medical fraternity. The newspaper report stating that “In recent years the proportion of retiring army officers under ‘disability pension’ has been almost one-third and even more significantly it is nearly half for doctors serving in the armed forces,” is a clear indication of decline in ethics in Armed Forces. This trend needs to be arrested by instituting strict measures and procedures to plug loopholes in the present system. A nodal/independent agency may be designated to assess the disability pension cases and ensuring that in case of senior officers the agency is in no way directly or indirectly under the influence of the officer being screened.

In earlier days most of us took pride in maintain ourselves medically fit and dreaded of getting medically downgraded, but nowadays it has become a trend to get downgraded once all avenues of career progression close. Here I would like to cite an example of an Officer I know very well and who was my senior in the Regiment viz Maj Gen Jagjit Singh Mahil, AVSM. As an instructor in the IMA, he got a jolt on his back during a BPET test in 1987. As a soldier he just took a few painkillers and short wave diathermy and carried on. Progressively it kept getting worse over the years. He never let this come in his way in carrying out his professional responsibilities and never let his men do anything which he couldn’t do it himself.

As an instructor in the ASMT he had a hairline fracture while practising for PPET tests in 1982 and running in the morning and slipped during a rainy spell. His leg was plastered very tightly resulting in his feet becoming black and he had to cut off the plaster with a knife. This started his tryst with varicose veins of the same leg. He also damaged his right knee as a Brig in Northern Command but carried on soldiering. He stayed with these three injuries all his professional life and not once cribbed and excused himself from anything which he was expected to do or achieve in the Army. All these finally took a toll on him and he had to undergo a spinal surgery between L4 and L5 in 2004 as Maj Gen.

He was 24 days on DI list as his cerebral spinal fluid was leaking because of the surgery but he bounced back by God’s grace. He willed himself with hard work and dedication and got himself upgraded to Shape One in a very short span of time and the Doctors were amazed at his recovery because of his soldierly pride that he did not want to leave the service as an LMC. Today after 13 years of retirement he has a total knee replacement of his right knee, his operated back is troubling him and he has developed varicose veins of his faulty plastered leg and needs to be operated. This Veteran Gen at 71 plus is still soldiering on and living a retired life with honour and pride! On the other hand and in contrast we have a Maj Gen who has recently been rightly punished for manipulating LMC and getting upgraded at the opportune time of promotion and finally getting downgraded to get Disability Pension.

There are many cases of officers who have rendered complete service and retired as LMC with Disability Pension and availed post-retirement employment meant exclusively for Veterans, served a complete term and got benefit of IT Exemption on complete amount. Seeing what is happening around in the Disability debates, one feels ashamed of a few people who have taken the system for a ride for personal gains. Such cases of impropriety should be severely dealt with and genuine cases should not be punished or denied rightful dues.

Has anyone ever thought of the case of families of fatal Physical Casualties who have not been granted SFP? I have sent three such cases which merit grant of SFP through proper channels for consideration by Army HQ duly recommend in the chain of command. These cases if favourably concluded will have a great impact on the morale of troops and public image of the hierarchy. It will also be a landmark initiative and achievement especially in the Year of the NOK.

Finally, all I have to say is that raising ones rightful cause over social media as well as electronic and print media is one thing, but spreading malicious misinformation for unreasonable demands is most unjustified. No one is actually concerned for cases that genuinely need to be exempted from IT – the Widows of Physical Casualties whose husbands are deceased and get lesser pension than others. I am in touch with a number of widows of Physical Casualties getting SFP/OFP: there is a Col’s widow whose husband was a promising officer and professionally very competent, qualified on all prestigious courses and served in highly active operational areas died while in service.

This lady has been granted OFP and getting much lesser pension with all responsibilities to handle by her, but she pays IT on her Family Pension – shouldn’t we raise our voices for such cases? There is a need to take up case with the concerned authorities to incorporate IT Exemption to Armed Forces personnel with disabilities due to Operational/War injuries and Family Pension of NOK of Physical Casualties also included in the IT Act 1961 as a permanent measure and in the meantime issue fresh and unambiguous CBDT Circular for immediate implementation.

Veteran Brigadier Vinayak Ramnarayan is an alumnus of the National Defence Academy and was commissioned on 15 June 1975 into the Army Air Defence. He masterminded useful innovations to integrate and synergize Army and Airforce AD systems and successfully inducted the first L/70 AD Gun on the line of control in High Altitude Area (on 18 Sep 1992) under heavy enemy fire. He was conferred with the General Officer Commanding-in-Chief (Central Command) Commendation Card on 26 Jan 2002 and Vishisht Seva Medal on 26 Jan 2008.He is presently President of Madhya Pradesh Ex-Services League (MPESL). He can be reached on Email: vinayak.ramnarayan@gmail.com