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INCOME TAX EXEMPTIONS FOR SERVING & RETIRED ARMED FORCES PERSONNEL : INDEPTH GUIDE

Explore income tax exemptions for serving personnel under various sections and pensionary benefits for others. Discover how these exemptions and ex-gratia compensation can ease your financial burden, ensuring you and your family receive the full recognition deserved for your service.
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Did you know that certain benefits and compensations for bravery in the armed forces come with hidden advantages? For both serving and retired armed forces personnel, these benefits offer substantial income tax exemptions. This guide will help you understand how these exemptions can ease your financial burden, ensuring you receive full recognition for your service. Let’s explore the world of Income Tax Exemptions and see how they can make your financial situation better.

Retirement or Death Gratuity

When you retire from your service years, you receive a gratuity, which is like a final handshake. The best part? This gratuity enjoys complete exemption from income tax. It’s a fitting acknowledgement of your commitment and sacrifice. You don’t have to worry about paying taxes on this amount, making your retirement smoother and more financially stable. This exemption applies to all armed forces personnel, recognizing their dedicated service.

Commutation of Pension

If you decide to commute, or exchange, a part of your pension for a lump sum payment, this amount is also free from income tax. It means that you can get a portion of your pension in advance without the taxman coming after you. This is especially beneficial for those who need immediate funds for various purposes, such as buying a house, paying for their children’s education, or other significant expenses.

Disability Pension: A Shield Against Taxation

For our brave soldiers who have suffered injuries while serving, disability pensions remain untouched by the tax collector. Both the service element and the disability element of these pensions are exempt from income tax. This means that those who have been injured in the line of duty get to keep their full disability pension without any deductions. This exemption acknowledges the sacrifices and challenges faced by injured personnel, ensuring they have financial security.

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Gallantry Award Winners and Their Families

Heroes who have received gallantry awards, such as the Param Vir Chakra (PVC), Maha Vir Chakra (MVC), Vir Chakra (VC), Ashok Chakra, Kirti Chakra, or Shaurya Chakra, enjoy a special privilege. Their pensions are completely tax-free. This Income tax exemption extends to their families as well, ensuring that the recognition for their bravery continues beyond their service years. These awards are a mark of exceptional valour, and the tax exemption is a way to honour that bravery.

Liberalized Family Pension: A Ray of Hope

When a member of the armed forces loses their life in the line of duty, their family is entitled to a liberalized family pension. This pension is also exempt from income tax. Whether the death occurs due to an act of courage, enemy action, or peacekeeping duties abroad, these pensions remain untouched by taxes, providing much-needed financial relief to the families of our fallen heroes. This exemption helps families cope with their loss without the added burden of taxes.

When Tragedy Strikes

The sacrifice of a beloved family member in the service of duty weighs heavily on the heart. However, the government offers Ex-Gratia compensation, which is a lump-sum payment to provide financial support in such tragic times. This compensation is also under Income Tax Exemption, meaning the entire amount goes to the family without any deductions. This financial aid is crucial during such distressing times, ensuring that families have the support they need.

The Numbers Speak

Here are the Ex-Gratia compensation amounts for different situations:

  • Accidental deaths: Rs 25 Lakhs
  • Acts of violence: Rs 25 Lakhs
  • Border skirmishes and similar situations: Rs 35 Lakhs
  • Extreme conditions: Rs 35 Lakhs
  • Enemy action or evacuation: Rs 45 Lakhs

These Income Tax exemptions are not just legal terms; they are a tribute to the sacrifices made by our armed forces personnel and their families. The tax-free status of these compensations ensures that families receive the full financial support they deserve during difficult times. These figures highlight the government’s commitment to supporting those who risk their lives for the country.

   NON TAXABLE ELEMENTS OF PAY

Ser NoElements of PayAuthLimit of Income Tax Exemption
1.Gallantry AwardAO 46/79 U/S 10(18) (i) of IT Acts wef 1947  Fully Exempt
2.Entertainment AllceU/S 16(ii) of IT Act      wef 01 Apr 1981A sums equal to 1/5th of salary (excl any allce/ benefit) or Rs 5000/- per annum whichever is less  
3.Leave Travel Concession (LTC)U/S 10(5) of IT Act     wef 01 Apr 1989Actual Expenditure upto the limit of entitlement  
4.Foreign AllceU/S 10(7) of IT ActFully Exempt
5.Bhutan Compensatory Allce (BCA)AO 395/74 and U/S 10(7) of IT ActFully Exempt
6.Servant Wages Allce alongwith BCAAO 395/74 and U/S 10(7) of IT ActFully Exempt
7.Purchase of Crockery/ Cutlery/ GlasswareU/S 10(7) of IT ActFully Exempt
8.Outfit Allce on posting to EmbassyU/S 10(7) of IT ActFully Exempt
9.Arrears of Cash Grant – Foreign Allce (Nepal)U/S 10(7) of IT ActFully Exempt
10.Myanmar AllceU/S 10(7) of IT ActFully Exempt
11.Representation Grant for use of crockery setU/S 10(7) of IT ActFully Exempt
12.Encashment of Lve on retirement whether on superannuation/ voluntary retirement/ release/ invalid ment etcU/S 10 (10AA) (i) of IT Act wef 01 Apr 1978Fully Exempt
13.House Rent Allce/ House Rent Reimbursement (HRA/HRR)U/S 10(13A0 of IT Act wef 06 Oct 1964; Limit of exemption as per Rule 2A of IT RulesQuantum of Income Tax exemption is least of the fwg:-   For Mumbai/ Kolkata/ Delhi/ Chennai:-   Allce actually recd. Rent paid in excess of 10% of salary.50% of salary.   For other cities:-   Allce actually recd. Rent paid in excess of 10% of salary.40% of salary.
14.Children Edn AllceU/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 5 of the IT Rules Income Tax exemption of Rs 100/- per month per child upto a max of 2 children.
15.Hostel SubsidyU/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 6 of the IT Rules Income Tax exemption of Rs 300/- per month per child upto a max of 2 children.
16.Siachen AllceU/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 1 (II) of the IT Rules Income Tax exemption Rs 7000/- per month wef 01 Aug 1997
17.Spl Compensatory (Remote Locality) AllceU/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 2 of the IT Rules Cat I – SCA ‘A’ – Rs 1300/- per month Cat III – SCA ‘B’ – Rs 1050/- per month Cat IV – SCA ‘C’ – Rs 750/- per month Cat VI – SCA ‘D’ – Rs 200/- per month
18.Compensatory Field Area Allce (CFAA)U/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 7 of the IT Rules Income Tax exemption of Rs 2600/- per month wef 01 May 1999
19.Compensatory Mod Fd Area Allce (CMFAA)U/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 8 of the IT Rules Income Tax exemption of Rs 1000/- per month wef 01 May 1999
20.Any Spl Allce in the nature of Counter Insurgency Allce (SCCIA)U/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 9 of the IT Rules Income Tax exemption of Rs 3900/- per month wef 01 May 1999
21.Tpt Allce gtd to meet expdr for the purpose of commuting between place of residence and dutyU/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 10 of the IT Rules For whole of India – Rs 1600/- per month
22.Tpt Allce gtd to a blind or orthopedically handicapped emp with disability of lower extremities, to meet expdr for the purpose of commuting between place of residence and dutyU/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 11 of the IT Rules                       For whole of India – Rs 3200/- per month
23.High Altitude Uncongenial Climate Allce (HAUCA)U/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 13 of the IT Rules For area of (a)   Altitude of 9000 to 15000 ft (HAUCA ‘I’) – Rs 1060/- per month wef 01 May 1999. (b)  Altitude above 15000/- ft (HAUCA ‘II’ & ‘III’) Rs 1600/- per month wef 01 May 1999.
24.Highly Active Fd Area Allce (HAF)U/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 14 of the IT Rules Rs 4200/- per month
25.Island (duty) Allce gtd to the members of Armed ForcesU/S 10 (14) (ii) of IT Act and Rule 2BB (2) – Table Ser No 15 of the IT Rules For Andaman & Nicobar and Lakshadweep group of Islands – Rs 3250/- per month inserted wef 29 Feb 2000
26.Outfit Allce (Initial / Renewal)U/S 10 (14) (i) of IT Act and Rule 2BB 1 (f) of the IT Rules Fully Exempt
27.Compensation for the change of uniformU/S 10 (14) (i) of IT Act and Rule 2BB 1 (f) of the IT Rules Fully Exempt
28.Kit Maint AllceU/S 10 (14) (i) of IT Act and Rule 2BB 1 (f) of the IT Rules Fully Exempt
29.Uniform Allce (MNS)U/S 10 (14) (i) of IT Act and Rule 2BB 1 (f) of the IT Rules Fully Exempt
30.Spl Winter Uniform AllceU/S 10 (14) (i) of IT Act and Rule 2BB 1 (f) of the IT Rules Fully Exempt
31.Reimbursement of Medical ExpensesU/S 17 (2) (viii) (v) of IT ActActual expdr upto Rs 15000/- per annum
32.Any payment from provident FundU/S 10 (11) of IT ActFully Exempt
33.Payment of Compensation – Disability PensionCBDT F No 200/51/99-ITA 1 dt 02 Jul 2001Fully Exempt
Legend
Allce : Allowance
TPT : Transport
Gtd : Granted
Expdr : Expenditure

Click Here to Download pdf on Tax-Exemptions for Armed Forces

Note

1.       Provisions are applicable equally for monthly payment of allce as well as arrears for the said head of Pay/ allce.

2.       Salary for this purpose incl Pay in Pay Band + Grade Pay + MSP wef 01 Sep 08 + DA + NPA (if any).

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Income Tax Return (ITR) Filing : An Overview

In this guide, we have explained the income tax exemptions related to pensionary benefits and Ex-gratia compensation. Whether you are a retiree, a gallantry award winner, or a family member of a fallen hero, these exemptions can significantly impact your financial well-being. Spread the word and ensure that those who serve our nation are aware of and receive the financial recognition they deserve. By understanding and claiming these exemptions, you can honour the service and sacrifices of our armed forces personnel. Ensure that these benefits are utilized to their fullest extent, providing the deserved relief and support to our nation’s heroes and their families.

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