Introduction
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.
1. Pensionary Benefits: What is Tax-Free
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.
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.
2. Ex-Gratia Compensation: A Tribute Beyond Taxation
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.
Authentic Sources: PRI 2013, Income Tax Act 1961, PCDA(P) Circular No. 188 (dated 06 Feb 2017)
3. Income Tax Exemptions Table
NON TAXABLE ELEMENTS OF PAY
| Ser No | Elements of Pay | Auth | Limit of Income Tax Exemption |
| 1. | Gallantry Award | AO 46/79 U/S 10(18) (i) of IT Acts wef 1947 | Fully Exempt |
| 2. | Entertainment Allce | U/S 16(ii) of IT Act wef 01 Apr 1981 | A 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 1989 | Actual Expenditure upto the limit of entitlement |
| 4. | Foreign Allce | U/S 10(7) of IT Act | Fully Exempt |
| 5. | Bhutan Compensatory Allce (BCA) | AO 395/74 and U/S 10(7) of IT Act | Fully Exempt |
| 6. | Servant Wages Allce alongwith BCA | AO 395/74 and U/S 10(7) of IT Act | Fully Exempt |
| 7. | Purchase of Crockery/ Cutlery/ Glassware | U/S 10(7) of IT Act | Fully Exempt |
| 8. | Outfit Allce on posting to Embassy | U/S 10(7) of IT Act | Fully Exempt |
| 9. | Arrears of Cash Grant – Foreign Allce (Nepal) | U/S 10(7) of IT Act | Fully Exempt |
| 10. | Myanmar Allce | U/S 10(7) of IT Act | Fully Exempt |
| 11. | Representation Grant for use of crockery set | U/S 10(7) of IT Act | Fully Exempt |
| 12. | Encashment of Lve on retirement whether on superannuation/ voluntary retirement/ release/ invalid ment etc | U/S 10 (10AA) (i) of IT Act wef 01 Apr 1978 | Fully 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 Rules | Quantum 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 Allce | U/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 Subsidy | U/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 Allce | U/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) Allce | U/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 duty | U/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 duty | U/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 Forces | U/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 uniform | U/S 10 (14) (i) of IT Act and Rule 2BB 1 (f) of the IT Rules | Fully Exempt |
| 28. | Kit Maint Allce | U/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 Allce | U/S 10 (14) (i) of IT Act and Rule 2BB 1 (f) of the IT Rules | Fully Exempt |
| 31. | Reimbursement of Medical Expenses | U/S 17 (2) (viii) (v) of IT Act | Actual expdr upto Rs 15000/- per annum |
| 32. | Any payment from provident Fund | U/S 10 (11) of IT Act | Fully Exempt |
| 33. | Payment of Compensation – Disability Pension | CBDT F No 200/51/99-ITA 1 dt 02 Jul 2001 | Fully 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).
Income Tax Return (ITR) Filing : An Overview
Conclusion
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.
Click here to Join ESM Corners “Tax Solution” WhatsApp Group for Smooth Tax Filing
