After OROP, Time to Make Indian Defence Pensions Tax Exempt

The President’s Commission order given to each Gentleman Cadet (GC) before he passes out from the Indian Military Academy (IMA), Dehradun and the Officers Training Academy (OTA), Chennai to become a commissioned officer in the Indian Army has four paragraphs and in it is written that any task entrusted has to be discharged diligently.

The oath which every GC of IMA and OTA takes before he is pipped with the ranks of Lieutenant which entails him becoming a commissioned officer in the Indian Army includes going by land, sea or air whenever ordered. A similar oath is taken by every recruit before he becomes a soldier in the various Regimental Centres across the country.

And so in the directives of the President’s Commission and the oath taken before donning the olive greens in the Army or the whites in the Navy or the blues in the Air Force, it is mandatory for every soldier of the Indian Armed Forces to be on the alert around the clock throughout the year and if the call of duty so beckons, to sacrifice one’s life or limb without blinking an eyelid in accordance with the Chetwode Motto that is inscribed in the IMA and the OTA, “The safety, honour and welfare of your country comes first, always and every time. The honour, welfare and comfort of the men you command comes next. Your own ease, comfort and safety comes last, always and every time”.

Adherence to the above also entails a disrupted family life and frequent change of schools of children of armed forces personnel, but that is all part and parcel of the noble profession of arms.

Recognising the tough life that a soldier leads in the armed forces, 26 States of the United States of America (USA) have given tax exemption on defence pensions.

In India the defence pensions are taxed except for certain types of pensions like the disability pensions etc. And this is not due to any politics but a simple provision being followed since our independence that defence pension is treated as salary for the purposes of calculating the income tax.

Can classifying defence pension as salary be justified is the moot point in question?

Let us first look as to why is defence pension still being given from the state exchequer though all the government organisations have shifted to the National Pension Scheme (NPS) since 01 January 2004. Indian Armed Forces personnel retire at much younger ages compared to their counterparts in the other government organisations and in the corporate. The main reason being the young age profile that has to be maintained in the rank and file of the armed forces so that they remain physically fit and agile to undertake any operation whenever called upon.

In my opinion pension should not be classified as a salary as it is an amount being given for early retirement due to the peculiar requirement of retiring its personnel at a younger age profile to retain the combat readiness and the operational efficiency of the armed forces. Two reasons for the justification that pension should not be treated as salary for income tax purposes are as follows.

Firstly, post retirement in the younger age bracket which is an operational necessity, finds many veterans at a difficult crossroad in life wherein the family responsibilities are tremendous and the job opportunities in the civil sector are far and few, forcing many veterans to either take up jobs not commensurate to their status or simply sit at home unemployed. Both of which have serious repercussions on his personal life.

And secondly there is a sharp dip in income when the salary and the pension of an armed forces personnel is compared. Had the pensionary amount been same as the salary amount, definitely it should continue to be taxed.

Though the Central Government in its right earnest has tried to mitigate this hardship of the veterans by announcing the One Rank One Pension (OROP) on 05 September 2015, but a small step of making pensions of the armed forces pensioners tax free would go a long way in ameliorating the hardships that the veterans face post retirement.

There are 24.62 lakh defence pensioners with approximately 55,000 defence pensioners being added every year. Out of these pensioners 22.83% pensioners are defence civilian pensioners. That makes it 5.62 lakh defence civilian pensioners.

The income tax exemption benefit should be only to the defence pensioners who draw the Military Service Pay (MSP) for the active defence service rendered. This would mean that only 19 lakh defence pensioners would qualify for the income tax benefit.

With a median of Rs 8000 taken as the average monthly income tax that a defence pensioner drawing MSP pays, this amount works out to approximately Rs 1 lakh per year per defence pensioner drawing the MSP. And it works out to Rs 19,000 crores per year.

For a nation where the budget amount in 2021 was Rs 19.76 trillion, an amount of Rs 19,000 crores that it will entail for making the pensions of the Indian armed forces personnel drawing MSP tax free is miniscule and can be well afforded.

A grand beginning for the veteran’s welfare has been already made with the implementation of the OROP. Let the winning run for the armed forces pensioners welfare be their pensions being made tax exempted.

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