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As India celebrates its 75th year of independence, it is important to throw light on certain benefits made available to Indian armed forces personnel by the Central Board of Direct Taxes (CBDT). One such benefit comes under Section 119(2)(b) of the Income Tax Act.

The Income Tax Law provides an opportunity to any taxpayer under section 119(2)(b) to claim the refund of TDS, exemption, deduction or any other tax relief under the Income Tax Act. This could come in handy for defence personnel who receive a disability pension.

When a serving personnel suffers injuries and consequential disabilities during the tenure of service, the person is eligible for a disability pension. Grant of defence pension and related benefits have evolved over the years towards a liberalised pension system. Pension Act and Regulations sets various eligibility criteria to receive the disability pension. To name a few, if the percentage of disability is assessed and accepted at 20% or more, a disability pension is granted. Similarly, the eligibility for pension also depends upon the reason for disability; when it is attributable to military services, only then a disability pension is granted.

At the time of disbursing disability pension, tax laws mandate that TDS is not required to be deducted. However, Circular no 13/2019, dated June 24, 2019, clarified that tax exemption will be available only to armed forces personnel invalided from service on account of bodily disability attributable to or aggravated by such service, and not to personnel retired on superannuation or otherwise. Accordingly, the government issued circular directing banks to deduct income tax on pension and disability benefits provided to disabled retired military personnel.

Subsequently, the sudden deduction of tax liabilities by the banks on disability pensions led to public outrage forcing the government to keep the decision in abeyance. Later, the government directed the defence accounts department to withdraw the circular of TDS deduction on such pensions.

Therefore, TDS should not be deducted from the disability pension received by military personnel who have been invalided from service on account of disability attributable to military services.

However, there have been cases when the tax was erroneously paid by the taxpayer at the time of filing ITR or TDS was deducted on the full disability pension when it was disbursed by way of the order passed by an authority for various years together. There could also be a case that the ITR is not filed as the amount was not exceeding the basic exemption and TDS is deducted on disability pension disbursed for previous years.

In all the above scenarios, the military personnel can claim the TDS refund by making an application to respective authorities under section 119(2)(b) read with circular 9/2015.

On February 28, 2019, in the case of Madan Gopal Singh Nagi Vs. Commissioner of Income Tax, the refund application under section 119(2)(b) was filed before the Assessing Officer (AO) by an officer of the Indian Army on the rank of Second Lieutenant related to erroneous payment of tax on the amount of disability pension. Repeated requests were made to the AO but the amount was not refunded on account of certain technicalities. The petition was filed before the Hon’ble High Court of Madhya Pradesh and it was held that “our army soldiers, naval officials and fighter pilots are day and night protecting our territorial borders from enemy infiltration and attacks and even while putting their life to the greatest risk, are keeping all citizens safe and secure and making our life free from all such dangers, where they don’t think of “technicalities" while fighting with enemies at the front, as to whether pulling the trigger of their gun would invite a “Court of inquiry" and from this practical perspective this Court wants to express its concern for not putting too much of technicalities in such matters by those who are invested with administrative powers to deal and decide the affairs of the personnel of Indian Armed Forces."

Ultimately, the court ruled in the favour of the petitioner and directed the department to refund the amount along with 12% interest per annum.

Similarly, on August 29, 2019, in the case of Colonel Ashwini Kumar Ram Singh Vs. Principal Commissioner of Income Tax the refund application was made as TDS was deducted on disability pension released together from 2007-08 to 2015-16 i.e for 9 years. The pension was released by an order passed by the Armed Forces Tribunal. However, a partial refund was released by the AO as the period of entertaining application of refund from 2007-08 to 2011-12 was beyond six years and accordingly, it was beyond the period prescribed in Circular No. 9/2015 dated 9-6-2015. The petition was filed before the Hon’ble High Court of Madhya Pradesh and the court itself condoned the delay in filing the claim instead of requesting the colonel to file the claim before the board. Again, the court considered granting immediate justice to the petitioner and directed the authorities to refund the TDS amount.

It should be noted that such claims will be allowed only if the non-compliance was because the taxpayer faced genuine hardship.

Keval Sonecha is a partner at Sonecha & Amlani.

TDS on disability pension - a case for Indian Armed Forces personnel PTI Photo (PTI7_25_2010_000051B) (Sgr- Mohd Amin War)
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TDS on disability pension - a case for Indian Armed Forces personnel PTI Photo (PTI7_25_2010_000051B) (Sgr- Mohd Amin War)
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