For more than a century, Indian tax law has recognised a simple moral truth: disability compensation paid to soldiers injured in operation is not income, but is a nation’s acknowledgement of loss. The Income-tax Act, 1922 granted exemption to disability pension as a relief to soldiers wounded in operations and rendered unfit for further employment in the same roles. Parliament, fully conscious of this intent, carried the exemption forward into the Income-tax Act, 1961.
This settled legal and moral position was disturbed in 2019, when a CBDT circular sought to restrict the exemption. The circular was challenged before the Supreme Court, which stayed its operation. That stay continues till date.
Now, through the Finance Bill, 2026, the government proposes to achieve indirectly what it could not do directly, by amending the statute itself to nullify a judicial stay. The amendment limits tax exemption only to those personnel who are “invalidated out” of service.
This classification is not merely flawed, but is irrational, discriminatory, and cruelly detached from military reality.
An Artificial Divide Among the Equally Disabled
In actual service conditions, two soldiers injured in the same incident, suffering from identical disabilities, may face different administrative outcomes. One may be invalidated out; another may be retained on sedentary or desk duties due to organisational requirements, manpower shortages, or even personal choice.
Under the proposed amendment, the former will enjoy tax exemption on disability pension, while the latter, equally disabled, equally unemployable outside service, will be denied the benefit.
This distinction has no rational nexus with the original purpose of the exemption, which was compensation for loss of bodily integrity and employability, not reward for administrative exit. The amendment thus violates the very intent of Parliament that has endured since 1922.
OROP: A Familiar Pattern of Bureaucratic Override
This is not an isolated episode. Indian military veterans have seen this pattern before, most notably in the case of One Rank One Pension (OROP).
OROP existed in substance until 1973. After the 1971 war, ironically treated as a “victory dividend”, the principle was diluted and dismantled, plunging generations of veterans into pensionary injustice. Also, pension was cut down from 70% to 50 % of last pay. Even today, despite repeated directions from the Armed Forces Tribunal and the Supreme Court to remove anomalies and ensure that no soldier is forced to approach courts for rightful dues, hundreds, if not thousands, of veterans are litigating across tribunals and courts.
Here, bureaucracy has not merely overridden legislative intent; it has defied judicial authority, forcing aged soldiers to spend their twilight years in court corridors.
The Tragedy of a Param Vir Chakra Family
Nothing exposes bureaucratic apathy more starkly than the case of Major Shaitan Singh Bhati, the hero of Rezang La in the 1962 war. Leading barely 120 soldiers, he held off nearly 3,000 Chinese troops in one of the most valiant last stands in military history, the result of which is, Ladakh is still an Indian territory, as on date.
The nation honoured him with the Param Vir Chakra. The bureaucracy honoured his widow with decades of neglect.
From 1962 to 1972, his wife was paid only 30% pension instead of the 60% she was entitled to. A meagre gratuity of ₹4,000 paid in 1963 was actually recovered from her pension the following year. Liberalised Family Pension which was introduced in 1972 for war casualties was extended to her only in 1996, after 24 years of delay.
She passed away in 2015 without receiving the full arrears. Even today, her son continues the legal battle for unpaid dues from 1972 to 1995.
If the family of a Param Vir Chakra awardee can be treated this way, what hope does an ordinary disabled soldier have?
NFU and the Culture of Defiance
The saga of Non-Functional Upgradation (NFU) further reveals a systemic problem. Despite favourable judgments from the Supreme Court, implementation has been stonewalled for years. Even where courts explicitly rule that relief applies to all similarly placed personnel, whether in the case of OROP or NFU, bureaucrats routinely deny benefits to those who were not direct litigants, forcing fresh cases, fresh costs, and fresh delays.
This is not administration; this is institutionalised resistance to justice.
Disability Compensation Is Not “Income”
At its core, this debate is not about taxation, it is about human dignity.
Disability pension is not income earned; it is compensation for permanent loss, pain, and curtailed life opportunities. It is a symbolic gesture by the nation to a soldier who lost a limb, an organ, or full physical capacity in its service. No monetary amount can truly compensate that loss.
One must ask, bluntly: Would those drafting these amendments be willing to lose even a fingernail for the nation, let alone a limb and then argue that the compensation is “taxable income”?
A Test of National Conscience
The Finance Bill, 2026 amendment is not merely a fiscal measure. It is a test of constitutional morality, legislative fidelity, and national conscience. By drawing an artificial line between “invalidated out” and “retained but disabled,” it punishes soldiers for administrative contingencies beyond their control.
India cannot afford a system where bureaucracy rewrites sacrifice and courts are bypassed through clever drafting. A nation that sends its youth to fight cannot later balance its books on their broken bodies.
If this amendment passes uncorrected, history will remember it, not as tax reform, but as moral retreat.
