Nearly a fortnight after the Union Budget announced income tax on disability pensions for armed forces personnel in the Union Budget-2026 continues to draw sharp reactions from India’s 3.2 million veterans.

General Ved Prakash Malik (Retd), Former Chief of the Army Staff, described the decision as "totally unjustified" and a hit to the dignity of the armed forces. He argued that many distinguished officers, including Field Marshal Sam Manekshaw, rose to high ranks despite being wounded. He noted that "misuse" should be a disciplinary matter, not a reason to change tax policy. Major General Shail Jha (Retd) said the decision would “destroy the ethos of commitment of the professional soldiers”.

The Union Budget 2026 removed tax exemption to disability pension of those Armed Forces personnel who have been superannuated. This is done while limiting tax exemption only to armed forces and paramilitary personnel who were “invalidated” from service due to service-related injuries.

This exemption was first provided by the Income Tax Act of 1922 and has continued through the Income Tax Act of 1961. 

The Central Board of Direct Taxes (CBDT) introduced a circular in 2019 stating: “Such tax exemption will be available only to armed forces personnel who have been invalidated from service on account of bodily disability attributable or aggravated by such service and not to personnel who have been retired on superannuation or otherwise.” 

The sudden deduction of tax liabilities led to public outrage, forcing the government to keep the decision on hold. The circular was finally challenged in the Supreme Court, which directed all parties to maintain the ‘status quo’ on the matter. The Finance Bill 2026 has now moved to legislatively override the judicial protections made by the Supreme Court regarding Disability Pension on the CBDT 2019 circular. 

Speaking in the Lok Sabha, Congress MP Shashi Tharoor called the development "disturbing" and an "indefensible line" between different types of service-related disabilities. He argued that the state has a "moral duty" to those who risk their lives, and taxing them for their resilience (continuing to serve until retirement) is a withdrawal of social protection. Leader of the Opposition Rahul Gandhi, reportedly attempted to raise the plight of veterans during the budget discussions. He has previously characterised such moves as a "financial assault" on the military. 

Mallikarjun Kharge, Congress President, accused the BJP of "fake nationalism," stating that the government is a "habitual offender" when it comes to cutting benefits for jawans and veterans. He noted that the move places soldiers at a disadvantage compared to civilian employees. Asaduddin Owaisi, AIMIM MP  Launched a direct attack on the government in the Lok Sabha, questioning why the tax benefits for disabled soldiers were being withdrawn while the government continues to spend on other "vanity projects."

Kirti P Chidambaram, MP, Lok Sabha, raised a constitutional objection by saying,” The proposal infringes Article 21 by undermining the right to live with dignity of soldiers permanently disabled in the service of the state. Veterans serve based on sovereign assurance and a legitimate expectation that the State will provide lifelong care if they return injured. The withdrawal of tax exemption amounts to a breach of this settled doctrine.  "

Superannuation means the personnel got injured in service and continued his service while being subject to a defence pension post-retirement. This defence pension was exempted from income tax for all these personnel. Till now.

Now, only those veterans who have been “invalidated” or “medically discharged” from the Forces have the right to keep 100% of their disability pension. Some examples of invalidation are those due to amputations, back injuries, broken load-bearing joints from various physical activities in training, such as BPET, Obstacle courses or even due to accidents in service.

One side of the debate states that these benefits have been misused by some personnel. Misuse often involves exaggerating, fabricating, or misrepresenting disabilities to obtain, or increase, monthly tax-free compensation.

The other side states that it is morally wrong for the government to differentiate between two disabled veterans who have served their country equally. Disability pension was never a favour. It was the State’s acknowledgement of the personnel’s service and selflessness.

Watch:  https://www.youtube.com/watch?v=hjSE0F8dqHg

Ayaan Ahmad

Research Analyst in Chakra News. Ex NDA with 4 years of experience in Defence and Geopolitics. Have an affinity for writing and finding stories from data.