Relevance: Prelims: Economy
Why in news?
- The government has withdrawn a circular of February 20 that had directed banks to deduct income tax on pension and disability benefits provided to disabled retired military personnel.
About:
- They are classified under three categories: battle casualties (war wounded), battle casualties and disabilities due to service conditions.
- 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), while 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.
Key highlights:
- 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.
- The defence accounts department has been directed by the government to withdraw the circular of February 20.
- 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) notification of June 2019 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.
- This has been challenged in the Supreme Court which, in an order dated August 30, 2019, directed all parties to maintain ‘status quo’ on the matter.
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