Lok Sabha Question No. 438 (STARRED), answered on 2026-03-23
Subject: Discontinuation of Income Tax Exemption on Disability Pension
Ministry: FINANCE
Asked by: Shri Asaduddin Owaisi

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE LOK SABHA

## STARRED QUESTION NO. *438

TO BE ANSWERED ON MONDAY, MARCH 23, 2026/CHAITRA 02, 1948 (SAKA)

## DISCONTINUATION OF INCOME TAX EXEMPTION ON DISABILITY PENSION

- *438. Shri Asaduddin Owaisi:

Will the Minister of FINANCE be pleased to state:

- (a)  the  rationale  behind  the  discontinuation  of  income  tax  exemption  on  disability pension to defence personnel still serving despite disability (not invalidated out) or those who have completed their term or took premature retirement despite it being upheld by the Supreme Court in 2019; (b) the manner in which the Government proposes to reconcile the discontinuation of this  tax  exemption despite judicial rulings that such pensions are compensatory in nature; (c)  the  number  of  superannuated personnel with service-attributable disabilities  as compared to those invalidated out; (d) the reasons for not introducing a grandfathering clause to protect veterans whose disability occurred prior to 1 April 2026; and (e) the measures taken by the Government to address borderline cases where the
- Medical Board recommended retention, but the disability is severe?

## ANSWER

## THE FINANCE MINISTER (SMT. NIRMALA SITHARAMAN)

(a) to (e): A statement is laid on the Table of the House.

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## Statement referred in reply to parts (a) to (e) of Lok Sabha Starred Question No. 438  to  be  answered  on  23.03.2026  regarding  Discontinuation  of  Income  Tax Exemption on Disability Pension by Shri Asaduddin Owaisi :

(a) The exemption in respect of disability pension received by members of the armed forces  who are invalided out of service on account of a disability attributable to or aggravated by military service has existed since the framework under the Income-tax Act, 1922 as provided vide Notification No. 878-F (Income Tax) dated March 21, 1922. When the Income-tax Act, 1961 came into force, the exemption continued through the repeal and savings provisions.

With the enactment of the Income-tax Act, 2025, the earlier enactments pertaining to Income-tax Act, 1922 and related savings provisions ceased to operate. Therefore, in the absence of an express provision in the new Act, the exemption would have lapsed. The  present  provision  has  been  included  to  ensure  the  continuation  of  the  same exemption that existed earlier, including its scope and conditions.

(b) T here is no discontinuation of the said tax exemption. On the contrary, the Finance Bill, 2026 proposes to explicitly provide for a specific exemption in respect of disability pensions under the Income-tax Act, 2025.

(c) As  of  31.01.2026  number  of  armed  forces  personnel  retired  from  service  with disability are 1,47,263 persons, while the number of armed forces personnel receiving disability pension who have been invalided out are 89,598 persons.

(d) Since the provisions under the Income-tax Act, 2025 are intended to continue the pre-existing legal position rather than introduce a new levy or withdraw an existing exemption, the question of introducing a grandfathering clause does not arise.

(e) The present system of Medical Examination in Armed Forces follows a laid down protocol. Armed Forces personnel are inducted in SHAPE-I in Army, S1A1 in Navy & A1G1 or A4G1 in Indian Air Force [AO 09/2011, NO 17/14, IAP 4303 (6th Edition)]. These  medical  classifications  (SHAPE-I,  S1A1,  A1G1  &  A4G1)  imply  that  the personnel are fit for all types of Military duties (A4G1 - is fitness classification for all operational requirements except flying duties in Air Force).

The medical fitness of the serving personnel is carried out annually. The personnel detected  with  disease/deformity/injuries/medical  conditions  are  placed  in  the  Low Medical Classification are also reviewed periodically depending on the service specific orders.  This  annual  medical  examination  includes  general  physical  and  systemic examination which is supported by battery of tests which differs based upon the role of  the  officer  in  their  respective  service.  On  detection  of  a  condition  the  service specialist  opines  on  the  medical  condition,  employment  restriction  and  medical classification of the personnel. The medical classification of a person is finalised by Medical Board constituted as per para 418 and 419 of Regulations for the Medical Services of the Armed Forces-2010 (Revised Version).

In case an individual is found to be suffering from any disease / injury, he / she is observed in temporary medical classification initially for three months to one year & later upgraded to SHAPE-1 and equivalent, on being cured of the disease or recovered from a condition to a level where no military restrictions are merited.

Personnel  who  do  not  improve  are  placed  and  observed  in  permanent  medical category  if  the  condition  is  not  fully  cured  and  thus,  have  restriction  for  military employability.  They  may  continue  to  serve  in  Armed  Forces  with  employment restrictions [Army Order 09/2011, NO 7/14 & IAP 4303 (6th Edition)].

Personnel in Permanent Low Medical Category are periodically reviewed at specified interval  (Every  two  years  in  Army  and  Navy,  and  every  year  in  Air  Force).  These reviews are carried out with the aim to assess in detail the medical condition, functional capacity and employment restriction of the individual.

Officers placed in permanent medical classification, undergo a Release Medical Board (RMB) before retirement/release/discharge [Army Order 3/89, NO 7/14 & IAP 4303 (6th Edition)]. The Release Medical Boards carry out assessment of impairment of such individuals in accordance with GMO- 2023 and the entitlement of the impairment is decided by Service HQs as per ER-2023 and GMO 2023.

Personnel in permanent medical classification if found unfit for discharging of military duties may be invalided out on medical grounds by an Invaliding Medical Board [Army Order 513/71, NO 7/14 & IAP 4303 (6th Edition)]. The Invaliding Medical Boards carry out assessment of impairment of such individuals in accordance with GMO- 2023 and the entitlement of the impairment is decided by Service HQs as per ER-2023 and GMO 2023.

The medical boards only define the medical condition and the various employability restrictions  necessitated  to  ensure  adequate  recovery  and  prevention  of  further deterioration of the condition. The promotion policies of the Armed Forces officers are dealt by respective MS Branch/ equivalent branches of other services.

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