TDS on Disability Pension – a case for Indian Armed Forces personnel

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As India celebrates its 75th anniversary, it is important to highlight certain benefits made available to Indian Armed Forces personnel by the Central Board of Direct Taxes (CBDT). One of these benefits falls under Section 119(2)(b) of the Income Tax Act.

The Income Tax Act provides any Section 119(2)(b) taxpayer the opportunity to claim a TDS refund, exemption, deduction or other tax relief under the Income Tax Act. This could be useful for defense personnel receiving a disability pension.

If a serving personnel suffers injuries and consequential disabilities while on duty, the person is entitled to a disability pension. Defense pension provision and related benefits have evolved over the years into a liberalized pension system. The Pensions Act and Regulations set out various eligibility criteria for disability pensions. From a degree of disability of 20%, to name just a few, a disability pension is granted. Similarly, entitlement to a pension also depends on the reason for disability; if it is due to military service, only then is a disability pension granted.

At the time of disability benefit payment, tax laws do not require TDS to be deducted. However, Circular No. 13/2019 of June 24, 2019 clarified that the tax exemption is granted only to members of the armed forces who are declared invalid due to a physical disability resulting from or aggravated by such service , and not for personnel retiring due to retirement or retirement otherwise. Accordingly, the government issued a circular directing banks to deduct income tax on pension and disability benefits provided to disabled retired military personnel.

As a result, the banks’ sudden withdrawal of tax liabilities on disability pensions sparked public outrage, forcing the government to hold the decision in limbo. Later, the government directed the Department of Defense Accounts to withdraw the circular on the TDS deduction on such annuities.

Therefore, TDS should not be deducted from disability benefits received by service members who have been ineligible for service-related disability.

However, there have been instances where the tax has been erroneously paid by the taxpayer at the time the ITR was filed, or TDS has been deducted from the full disability benefit when it was paid together for several years by administrative order. It could also happen that the ITR is not filed because the amount does not exceed the basic allowance and TDS is deducted from the disability benefit paid for previous years.

In all of the above scenarios, military personnel can request TDS reimbursement by applying to the relevant authorities in accordance with Section 119 (2) (b) read with Circular 9/2015.

On 28 February 2019, in the case of Madan Gopal Singh Nagi Vs. Commissioner of Income Tax, the Section 119(2)(b) refund application was made before the Assessing Officer (AO) by an officer of the Indian Army of the rank of Second Lieutenant in connection with the incorrect payment of taxes on the amount of disability put the pension. Repeated applications were made to the AO, but the amount was not reimbursed due to certain formalities. The petition was filed in Madhya Pradesh’s Hon’ble High Court and found that “Day and night, our army soldiers, naval officers and fighter pilots protect our territorial borders from enemy infiltration and attack, even putting their lives at greatest risk, keeping all citizens safe.” and to make our lives free from all these dangers where they don’t think about “technical details” while fighting enemies on the front line, whether pulling the trigger of their weapon would invite a “court of inquiry”, and from this practical one Perspective, this Court wishes to express its concern that those vested with administrative powers to deal with and decide on Indian Armed Forces personnel matters do not put too much technical detail into such matters.”

Ultimately, the court ruled in favor of the petitioner and ordered the Ministry to refund the amount together with 12% interest per annum.

Similarly, on August 29, 2019, in the case of Colonel Ashwini Kumar Ram Singh Vs. the Principal Commissioner of Income Tax, the refund application was filed as TDS was deducted from the Disability Pension accrued collectively from 2007-08 to 2015-16 ie for 9 years, has been released. The pension was released by a decision of the Wehrmacht court. However, a partial refund was released by the AO because the period to apply for the refund was more than six years from 2007-08 to 2011-12, exceeding the period prescribed in Circular No. 9/2015 of 9-6-2015 . The petition was brought before the Hon’ble High Court of Madhya Pradesh and the court itself condoned the delay in filing the case rather than asking the Colonel to bring the case before the Chamber. Again, the court considered granting immediate justice to the petitioner and ordered the authorities to refund the TDS amount.

It should be noted that such demands are only permissible if the non-compliance is due to the fact that the taxpayer has faced real hardship.

Keval Sonecha is a partner at Sonecha & Amlani.

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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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