Income Tax Exemptions for Defence Personnel

Considering their daily risk to life and limb does an Indian soldier receive special exemptions from income tax on his return form? Life as a service conscript is different from other professions in terms of obligations and risk involved.

As a member of the Indian Army, for example an ordinary soldier is bound to obey orders regardless of his human instincts or danger involved in a particular task. People would remember video grabs of the Doklam standoff with members of the Chinese PLA over incursion into what we consider Bhutanese territory for whom India owes responsibilities of defence and sovereign integrity. If you felt pride at the resolve and restraint displayed by these men in successfully keeping the Chinese at bay then you are a consumer of a public good. A country’s defence is a benefit that is enjoyed by all its citizens but none can be excluded from receiving those benefits.

Difficult Service Conditions of Armed Forces Personnel

• A soldier is obliged to accept difficult postings for most of the year. Consider the life of soldiers posted at Siachen and other passes in the rugged Himalayas, for example.
• If a soldier is trained with weapons and asked to fight, he risks permanent disability. Soldiers also retire in their 40s and officers in their 50s thus rendering them without a remunerative future after their most productive phase of life.
• Regular transfers disturb the tranquillity of married life and reduce the chances of feeling settled or emotionally adjusted.
• Salaries before the 7th pay commission recommendations were very modest and careers after retirement were dismal.
• They have liabilities, families to feed and plan for their children’s education to name just a few of the ways in which their life is different from a civilian’s. The scenario is only slightly better for members of the navy and the air force.

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Although the 7th central pay commission brought some reforms by raising the incomes before taxes and age limit of servicemen before mandatory retirement, other drawbacks, such as emotional and mental health fail to be addressed in policy changes.

It stands to reason then that these brave men and women be given something in return for the sacrifices that they make. Would it be fair to ask for exemptions from income tax for every member of the armed forces in India?

That question is best left to the reader to be answered. Nevertheless, it is indisputable that certain allowances such as disability pension, pension to be received by family members of a deceased former serviceman etc. should be exempt from income tax payment responsibilities.

1. According to Section 10(14) of the I-T Act, many allowances received by servicemen constitute funds towards duties of a special nature and qualify for relief. A sample list is given below.
   1. Entertainment allowance
   2. Foreign allowance
   3. Leave Travel Concession
   4. Servant wages allowance with BCA
   5. Purchase of crockery, cutlery or glassware
   6. Outfit allowance when posted at an embassy
   7. Encashment of leave at the time of retirement
   8. Hostel subsidy
   9. Special allowances for operating in remote locations
   10. Compensatory Field Area allowance
   11. Counter insurgency related allowances
   12. Allowances to handicapped, blind employees
2. As of now, Disability pensions to families of those who suffered the injury while on duty remain exempt courtesy a CBDT circular going back to 1970.
3. Certain gallantry award winners serving in any Central Government arm are completely exempt from income tax payment or return filing, as per Section 10 (18)(i). These include Param Vir Chakra, Maha Vir Chakra and Vir Chakra awardees. Pensions received by their families are also exempt.
4. Moneys received in the name of Regimental Fund or Non-Public Fund to benefit serving and retired soldiers are not to be taxed (Section 23AA). The same goes for funds of a corporation established by a law making body for similar purposes (Section 26BBB).
5. Those donating to such funds are also eligible for income tax deductions under Section 80G(iiihc).
6. Provident funds being contributed to by defence personnel while being in service are also eligible for income tax deductions under the Fourth Schedule of the I-T Act.
7. All other exemptions and deductions as afforded to civilian citizens under the I-T Act are available to servicemen as well.

AllindiaITR, who made one of the three most popular tax efiling apps for both android and iOS platforms, launched an initiative in July 2017 to provide CA assisted tax return filing services for all members of the armed forces completely free of charge. A rapidly rising tax efiling platform for easing returns for the common man, the site is owned and operated by Corwhite Solutions Private Limited.

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