The Ministry of Defence on Tuesday directed the Principal Controller of Defence Accounts (PCDA) to stop deducting tax on disability pensions of veterans and withdraw the contentious circular issued to that effect.
“In view of the directions of the Supreme Court, PCDA(P), Allahabad may be advised to issue a circular to Pension Disbursing Agencies not to make recovery of income tax on disability pension as per CBDT circular No. 210… dated February 20, 2020, till a final decision is taken by the Supreme Court in the matter,” the ministry said in an order. The order was issued with the approval of Secretary (Defence Finance).
The PCDA, Allahabad had issued a circular, dated February 20, for “necessary action” on a Central Board of Direct Taxes (CBDT) June notification, which said tax exemption on disability pension would be available only to armed forces personnel who had been invalidated from service and not to personnel who had been retired on superannuation or otherwise.
Acting on the PCDA circular, the State Bank of India had at the end of last week debited tax at source for the entire financial year from the February pension of veterans receiving disability pension as a result of which several pensioners received as little as ₹100 in their accounts.
However, the Supreme Court, which is hearing the matter, had in its order dated August 30, 2019, directed all parties to maintain ‘status quo’ on the matter. “The PCDA order is a contempt of Court as there is a stay on the issue,” said a defence official, who spoke on the condition of anonymity.
I-T Department didn’t oppose exemption
Even the Income Tax Department, in its affidavit submitted to the Supreme Court in December 2019, had not opposed tax exemption on disability pension for veterans, defence officials said.
“Rather the affidavit was supporting disability pensioners and said the intention was not to withdraw any tax exemption from disability pensioners but to only clarify that such exemption is not available to personnel who superannuate and thereafter develop a disability,” another defence official, who declined to be identified, said.
In its submission to the apex xourt, the I-T department had also submitted that it “fully understands that the health of military personnel is effected by hostile conditions and separation from family and they have not passed any instructions for deduction of income tax,” the official added.