Income Tax Act, 2025 Retains Disability Pension Exemption for Armed Forces; Govt Denies Withdrawal Claims

The Government, during the parliament session, officially clarified that the income tax exemption on disability pensions for armed forces personnel remains fully intact under the newly enacted Income Tax Act, 2025.

In the written response to a question in the Lok Sabha, the Finance Ministry confirmed that this long-standing benefit which has existed since the 1922 Act and continued through the 1961 Act has been carried forward into the new Act.

Because the previous Income-tax Act ceased to operate once the 2025 Act was introduced, many feared that the specific exemptions for disability pensions might have been dropped.

However, the Government explained that the Finance Bill, 2026, contains specific provisions designed to ensure that the scope and conditions of the exemption remain unchanged.

By incorporating these protections directly into the new act, the Government has dispelled rumors regarding the discontinuation of the benefit for those who are either invalided out or retire with a disability.

“Since the provisions under the Income-tax Act, 2025 are intended to continue the pre-existing legal position rather than introduce a new levy or withdraw an existing exemption, the question of introducing a grandfathering clause does not arise” said the Ministry in its reply.

The Government also shared recent data showing that as of January 2026, over 1.47 lakh personnel have retired with a disability, while nearly 90,000 have been invalided out and are currently receiving disability pensions.

The pension will be continued even under the new Income tax Act, 2025, said the Ministry.

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