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Tags Current Affairs

Tax on disability pension

Date: 07 March 2020 Tags: Miscellaneous

Issue

The government has withdrawn a circular of February 20 that had directed banks to deduct income tax on pension and disability benefits provided to disabled retired military personnel.

 

Background

Although the letter provided exemption to those invalidated from service due to bodily disabilities, the sudden deduction of tax liabilities by the banks led to a public outrage, forcing the government to keep the decision in abeyance. 

 

Details

  • Those military personnel who have been disabled due to wounds or injuries suffered by them in operations with the enemy or terrorists/ insurgents or suchlike operations are battle casualties (war wounded).

  • Personnel who have been declared battle casualties but have not suffered injuries due to physical wounds are classified under battle casualties.

  • The third category pertains to personnel who have been disabled due to conditions of service, wherein some of the disabilities akin to lifestyle diseases are also included.

  • Benefits are based on the percentage of disability: less than 20% disability is not entitled to any benefits while those with disability from 21% to 50% are categorised as 50% disabled, those with 51% to 75% disability are classified as 75% disabled, and those with 76% or more disability are classified as 100% disabled.

  • The amount of disability pension is based on two categories. The first rate is for battle casualties (war wounded) and battle casualties: For 21% to 50% disability, 30% of the last pay drawn is given as disability pension; for 51% to 75% disability, 45% of the last pay; and for 76% of more disability, 60% of last pay drawn on retirement is given as disability pension.

  • The second rate applies to personnel with disabilities due to service conditions: For 21% to 50% disability, 15% of the last pay drawn is the disability pension; for 51% to 75% disability, 22.5% of the last pay; and for 76% of more disability, 30% of the last pay drawn on retirement is given as disability pension.

  • The entire pension and disability element of pension in all the categories is exempt from payment of income tax.

  • But the Central Board of Direct Taxes (CBDT) had said that tax exemption on disability pension would be available only to personnel who had been invalidated from service and not to personnel who had retired otherwise.

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