A serving soldier's pay and most allowances are fully taxable as salary, with a Rs75,000 standard deduction under the default new regime — and nil tax up to Rs12 lakh taxable income after the Section 87A rebate. But armed forces personnel enjoy special reliefs civilians do not: disability pension is fully exempt, gallantry-award pension is exempt under Section 10(18), and field, high-altitude and counter-insurgency allowances are exempt within notified limits under Section 10(14).
What is Taxable vs Exempt for Defence Personnel
Salary components for Army, Navy and Air Force personnel, with the exemption position for each. Note the new regime (default from AY 2024-25) removes most allowance-based exemptions except a few.
| Component | Taxable? | Section | Notes |
|---|---|---|---|
| Basic pay & DA | Taxable | — | Core salary, taxed at slab |
| Military Service Pay (MSP) | Taxable | — | Part of salary |
| Disability pension (service + disability element) | Exempt | Instruction 2/2001 | Fully exempt for invalided-out personnel |
| Gallantry award pension / allowance | Exempt | 10(18) | PVC, MVC, VrC, Ashoka Chakra etc. |
| Family pension — killed in operational duty | Exempt | 10(19) | Family of armed-forces member |
| Field / high-altitude / Siachen allowance | Exempt* | 10(14) r.w. Rule 2BB | *Within notified per-month limits |
| Counter-insurgency allowance | Exempt* | 10(14) r.w. Rule 2BB | *Notified limit |
| HRA | Old regime only | 10(13A) | Exempt only if in old regime |
| Agniveer Corpus Fund (Govt contribution) | Deductible | 80CCH(2) | Available even in new regime |
| Standard deduction | Deductible | 16(ia) | Rs75,000 new · Rs50,000 old |
Positions reflect FY 2025-26 / AY 2026-27. The Income-tax Act, 2025 renumbers these provisions from AY 2026-27; the reliefs above are carried forward. Verify on incometax.gov.in before filing.
Field & High-Altitude Allowances — Section 10(14)
Under Section 10(14) read with Rule 2BB, several allowances paid for hardship postings are exempt within notified per-month limits. These are among the very few allowance exemptions the armed forces retain — but almost all of them are lost if you opt for the new tax regime, so the regime choice matters a lot for personnel in hardship areas.
| Allowance | Exemption (per month) | Where |
|---|---|---|
| Special Compensatory (Hilly Areas) | Up to Rs800 | Notified hill/high-altitude areas |
| High Altitude Allowance (9,000–15,000 ft) | Up to Rs1,060 | Rule 2BB(2) |
| High Altitude Allowance (above 15,000 ft) | Up to Rs1,600 | Siachen & similar |
| Compensatory Field Area Allowance | Up to Rs2,600 | Notified field areas |
| Compensatory Modified Field Area Allowance | Up to Rs1,000 | Notified modified field areas |
| Counter-Insurgency Allowance | Up to Rs3,900 | To armed-forces members in specified areas |
| Island Duty Allowance (Andaman/Nicobar/Lakshadweep) | Up to Rs3,250 | Rule 2BB(2) |
Amounts are the exempt ceilings under Rule 2BB; the balance is taxable. These exemptions apply under the old regime; the new regime withdraws them.
If you draw large field, high-altitude or counter-insurgency allowances, the old regime may still be better because these 10(14) exemptions plus HRA and 80C can outweigh the higher Rs75,000 standard deduction and lower slabs of the new regime. Run both before you lock the regime for the year.
Posted in a field or high-altitude area? Compare both regimes before you file.
Compare Regimes →Pension, Disability Pension & Family Pension
Retirement benefits are where defence personnel gain the most over civilians. The key relief is the full income-tax exemption on disability pension for personnel invalided out of service.
- Ordinary service pension — taxable as salary; the Rs75,000 (new) / Rs50,000 (old) standard deduction applies.
- Disability pension — both the service element and the disability element are fully exempt for personnel invalided out of service, per CBDT Instruction No. 2/2001 (F.No. 200/51/99-ITA-1).
- Gallantry-award pension — fully exempt under Section 10(18) for recipients of Param Vir Chakra, Maha Vir Chakra, Vir Chakra and other notified awards.
- Family pension to the family of a member of the armed forces who died in operational duty is fully exempt under Section 10(19); ordinary family pension gets the standard 1/3 or Rs15,000 (whichever lower) relief.
- Commuted pension, gratuity and leave encashment on retirement of a government/defence employee are fully exempt.
Disability-pension exemption is not automatic in every payroll system — many retired personnel are over-deducted TDS on the exempt element. You can reclaim it by filing an ITR and claiming the exemption, then a refund. Keep the invaliding-out documentation ready.
TDS deducted on your exempt disability pension? We can help you claim the refund.
Get Refund Help →New vs Old Regime for Defence Personnel
The new regime is the default from AY 2024-25. It offers a higher Rs75,000 standard deduction and a Section 87A rebate that makes tax nil up to Rs12 lakh taxable income (about Rs12.75L gross for salaried, after standard deduction). But it withdraws HRA, 80C and most 10(14) allowance exemptions — which matter for personnel in hardship postings.
Default regime — simpler
- Rs75,000 standard deduction
- Nil tax up to Rs12L taxable (87A)
- Slabs: nil to Rs4L, then 5%–30% to Rs24L+
- 80CCD(2) & 80CCH(2) still allowed
- No HRA / 80C / most 10(14) exemptions
Optional — deduction-heavy
- Rs50,000 standard deduction
- 87A rebate up to Rs5L only
- HRA, LTA & 10(14) field allowances exempt
- 80C up to Rs1.5L + 80CCD(1B) Rs50,000
- Better for high hardship-allowance drawers
| Benefit | Old Regime | New Regime |
|---|---|---|
| Standard deduction | Rs50,000 | Rs75,000 |
| Field / high-altitude allowance exemption | Available | Not available |
| HRA exemption | Available | Not available |
| Section 80C (PPF, LIC, own NPS) | Up to Rs1.5L | Not available |
| Section 80CCD(2) employer/Govt NPS | Available | Available |
| Section 80CCH(2) Agniveer Corpus (Govt part) | Available | Available |
| Disability / gallantry pension exemption | Exempt | Exempt |
Exemptions on disability & gallantry pension apply under both regimes; allowance and Chapter VI-A deductions are largely old-regime only.
Agniveers — Section 80CCH & Seva Nidhi
Agniveers enrolled under the Agnipath scheme get a dedicated benefit. Under Section 80CCH, the contribution to the Agniveer Corpus Fund is deductible; the Central Government's matching contribution — Section 80CCH(2) — is deductible even under the new regime. The lump-sum Seva Nidhi received on completion of service is fully exempt under Section 10(12C).
Not sure which regime saves you more? Use our old-vs-new calculator.
Old vs New Calculator →Frequently Asked Questions
Related TaxClue services
Serving or Retired From the Forces? File Right.
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