ITR For Army Personnel: Special Tax Exemptions and choosing right ITR Form

Army personnel like any other salaried individuals are subject to paying income tax on their earnings. However, certain allowances and exemptions specifically cater to the unique lifestyle and challenges the armed forces face.

Let us understand the various exemptions and deductions available to help army personnel effectively plan their finances and reduce their tax liability as much as possible.

Exemptions and Allowances available specifically for the Armed Forces Personnel

Counter-insurgency Allowance(Section 10(14))

This allowance is provided to the members of the Armed Forces when they are operating in regions prone to insurgency and facing challenges and risks. This allowance is to compensate for the harsh conditions and additional dangers involved in their operations. This allowance is partially exempt under Section 10(14) to provide financial relief. The exempt amount is deducted from the full amount and the remaining amount is subject to tax. The exempt amount for the Counter Insurgency Allowance are:

• For Junior Commissioned Officers(JCO) and Other Ranks: Up to ₹ 3,900 per month is exempt from income tax.
• For Commissioned Officers: Up to ₹ 4,200 per month is exempt from income tax.

High Altitude Allowance(Section 10(14))

This is an important allowance for the army personnel that are deployed in areas of high altitude facing challenging and harsh conditions. This additional financial compensation aims to offset the difficulties and risks associated with serving in such extreme environments. There are 2 Categories of this allowance based on the altitude of the deployment location.

• Category I: Altitude of 9,000 feet to 15,000 feet. High Altitude Allowance under this category is exempt up to ₹ 1,060 per month.
• Category II: Altitude above 15,000 feet. High Altitude Allowance under this category is exempt up to ₹ 1,600 per month.

High Active Field Area Allowance(Section 10(14))

Army personnel deployed in highly active field areas face a slew of significant risks and challenges due to operating in such intense locations. To compensate for the additional risks and hardships, an allowance for High Active Field Areas is provided by the government. Under Section 10(14) of the Income Tax Act 1961, an amount up to ₹ 4,200 per month is exempt from income tax for both Junior Commissioned Officers(JCOs) and Officers. Any allowance received over and above this amount shall be taxable.

Island Duty Allowance(Section 10(14))

The Army personnel posted on islands facing geographical isolation, difficult living conditions and limited access to resources are compensated for these hardships through the government-provided Island Duty Allowance. Under Section 10(14) of the Income Tax Act 1961, an amount of up to ₹ 3,250 per month is exempt from tax for both JCOs and Officers. Any allowance received over that amount shall be subject to tax.

Transport Allowance(Section 10(14))

This allowance is provided to the armed personnel to meet their travel expenses from residence to workplace and vice versa. Armed forces have specific rules for this allowance due to the difference in the nature of their duties and postings. Exemption under this allowance is available for disabled or blind taxpayers. The Transport Allowance is exempt up to ₹ 3,200 per month ( ₹ 38,400 per year)

Uniform Allowance(Section 10(14))

Armed Personnel who need to purchase or maintain their uniforms while on duty usually receive a uniform allowance. This allowance is exempt up to the amount actually spent on the uniform. To claim this exemption, personnel need to maintain the receipts and records of such expenses incurred in purchasing and maintaining the uniform. Therefore, if the allowance received is more than the actual expenditure, the unspent amount is taxable in the hands of the taxpayer.

Disability Pension Indian Army(Section 10(14))

Disability pension received by the Armed Personnel is an important financial support system for the brave soldiers who have suffered disability during their service. The Ministry of Defence grants these armed forces a monthly pension and is ruled under Pension Regulations for the Army Act 1961, revised in the year 2008. The new Entitlement Rules (ER) for Casualty Pension and Disability Compensation Awards to Armed Forces Personnel, 2023 have come into force from 21st September 2023 and have no retrospective effect. The pension amount consists of 2 components, the service component and the disability component and is fully exempt from tax under Section 10(14) of the Income Tax Act 1961. The service component is equal to the retiring pension which is 50% of the last drawn emoluments. The disability component is 30% of reckonable emoluments last drawn for 100% disability. Under these new rules, the Disability element has been renamed as Impairment Relief in respect of those personnel who are not invalidated due to the nature of their disabilities and continue to serve till their term of engagement. However, this is a change in the name and not in the emoluments to be received.

Family Pension (Section 10(19))

The pension received by the Family of an Armed Forces Personnel(including paramilitary forces) who has passed away while on duty shall be exempt from tax under the Income Tax Act 1961. Thus, the family member receiving such income would not be liable to pay tax on the entire portion of the pension income.

Pension to Gallantry Award Winner(Section 10(18))

A person who was an employee of the Central Government or State Government that has been awarded the ‘Param Vir Chakra’ or the ‘Maha Vir Chakra’ or the ‘Vir Chakra’ or any other notified gallantry would be exempt from paying tax on the pension thus received.

Donations to Corporation for Ex-servicemen(Section 80G)

The Government has set up special organizations to help ex-servicemen (persons who were previously a part of the Armed Forces). The donations made to such Ex-servicemen Welfare Fund or similar specified funds can qualify for deductions under Section 80G, reducing the taxable income of the taxpayer making such a donation. This section greatly encourages donations to such funds thereby helping the ex-servicemen leverage these schemes to transition to civilian life.

Income received on behalf of any Regimental Fund(Section 10(23AA))

Any person receiving any income from any Regimental Fund or Non-Public Find established by the Armed Forces for the well being of the past and present members of the Armed Forces or their dependents is exempt from tax in their hands.

General points

Choosing the applicable ITR Form

An armed forces individual would likely fall into either of the above 2 situations and should pick the applicable ITR form. A unique case will likely lead to the applicability of a different ITR form from the above.

Choosing the appropriate tax regime

Just like any other return, the army personnel must choose the tax regime that is most beneficial to them causing the least tax liability. The new regime is now the default tax regime and to avail of the old tax regime, the taxpayer has to opt out of the new regime and opt-in for the old tax slabs. Careful research is to be done while making this choice as availing of the new tax regime shall mean some allowances and exemptions are unavailable and opting for the old regime means different slab rates.

Chapter VIA Deductions

Depending on the opting of the old tax regime the various deductions under Chapter VIA of the Income Tax Act shall be available.

• Section 80C: Up to ₹ 1,50,000 deduction is available on investments made to PPF, NSC, Tax-saving Fixed Deposits etc
• Section 80D: A deduction of ₹25,000 is available on payment of Medical Insurance for Self, Spouse and any dependent Children. If the individual is aged above 60 then the deduction is ₹50,000. An additional ₹25,000 is available for Medical Insurance Payments made for Parents. If the parents are above 60 years of age then ₹50,000 is the additional deduction available.
• Section 80E: Deduction is available on interest paid for education loans. There is no limit on the amount of deduction that can be availed, it should be in line with the interest payments made and can only be availed for a period of 8 years.
• Section 80G: Deduction is available on donations made to specified funds and charities. Donation can be 50% or 100%. Read more on this section here.
• Section 80TTA: A deduction of up to ₹ 10,000 is available on the interest earned on a Savings Bank Account in a bank, co-operative society or Post Office account.

Reconciling information in the Income Tax Return with Form 16, Form 26AS and AIS

It is essential to ensure all the data in the ITR form is cross-referenced with the information available to the taxpayer in Form 16, Form 26AS and the AIS. This ensures there is accuracy and completeness in the ITR being filed.

File on or before the due date

For an individual assessee who is not liable to any tax audit, the due date for filing is July 31st of the following financial year. It is advised to file the ITR form on or before the applicable due date as not doing so shall lead to interest and penalties.

While the above covers important points to be kept in mind by the Armed Personnel while filing their ITR, it is also important to remember that Income tax laws are ever-changing and it is the responsibility of the taxpayer to be mindful of the changes and how they can be leveraged for their ultimate benefit. It is also recommended to take the aid of professionals like Tax Consultants or Chartered Accountants if necessary. Some more points to be kept in mind while filing the ITR can be found here.