Context: Recently, the government has withdrawn a circular of February 20 that had directed banks to deduct income tax on pension and disability benefits provided to disabled retired military personnel

• Disabled veterans are classified under three categories: battle casualties (war wounded), battle casualties and disabilities due to service conditions.
• Benefits given to disabled personnel are based on the percentage of disability i.e.less than 20% disability is not entitled to any benefits while those with disability from 21% to 50% are categorised as 50% disabled, those with 51% to 75% disability are classified as 75% disabled, and those with 76% or more disability are classified as 100% disabled.
• The amount of disability pension is based on two categories. The first rate is for battle casualties (war wounded) and battle casualties. The second rate applies to personnel with disabilities due to service conditions.
• The entire pension and disability element of pension in all the categories is exempt from payment of income tax.But the Central Board of Direct Taxes (CBDT) notification of June 2019 had said that tax exemption on disability pension would be available only to personnel who had been invalidated from service and not to personnel who had retired otherwise.
• This has been challenged in the Supreme Court which, in an order dated August 30, 2019, directed all parties to maintain ‘status quo’ on the matter.