Tax Exemption & Deduction for Army Personnel AY 2025–26.

Income Tax Exemptions and Deductions for Army Personnel (AY 2025–26)

Army personnel, like all salaried taxpayers, are liable to pay income tax under the Income Tax Act, 1961. However, given the challenging service conditions and frequent postings in inhospitable areas, the law provides special exemptions and deductions to help them minimize their tax burden. We here understand the taxability status of pay & allowances for Army & security personnel for AY 2025–26.

Fully Taxable Pay & Allowances for Army Personnel & security personnel

All regular components of pay are fully taxable, including Basic Pay, Dearness Allowance (DA), Military Service Pay, Grade Pay, Technical Allowance, Hazard Pay, City Compensatory Allowance (CCA), Para Allowance, Language Pay, Flying/Instructor/Test Pilot Allowances, etc.If an allowance is not specifically exempted under the Income Tax Act, it is deemed taxable. Following are Fully Exempt Allowances (Under Specific Sections) for Army Personnel & Security Personnel.

• Gallantry Awards—u/s 10(18)
• Foreign Allowances—u/s 10(7)
• Leave Encashment on Retirement—u/s 10(10AA)(i)
• Uniform/Kit Maintenance/Outfit Allowances—u/s 10(14)(i) read with Rule 2BB
• Disability Pension Compensation—CBDT Circular F.No.200/51/99-ITA1
• Provident Fund Withdrawals—u/s 10(11)

Fully Exempt Pay Allowances—AY 2025–26 for Army Personnel & security personnel

Nature of Pay/Allowance	Exemption Status	Relevant Provision
Gallantry Award	Fully Exempt	A.O. 46/79; u/s 10(18)(i) IT Act (w.e.f. 1947)
Foreign Allowance	Fully Exempt	u/s 10(7)
Bhutan Compensatory Allowance	Fully Exempt	AO 395/74; u/s 10(7)
Servant Wages Allowance with BCA	Fully Exempt	AO 395/74; u/s 10(7)
Purchase of Crockery/Cutlery/Glassware	Fully Exempt	u/s 10(7)
Outfit Allowance on Embassy Posting	Fully Exempt	u/s 10(7)
Arrears of Cash Grant – Foreign Allowance (Nepal)	Fully Exempt	u/s 10(7)
Myanmar Allowance	Fully Exempt	u/s 10(7)
Representation Grant (for crockery set)	Fully Exempt	u/s 10(7)
Leave Encashment on Retirement (superannuation/voluntary/invalidment)	Fully Exempt	u/s 10(10AA)(i) (w.e.f. 01.04.1978)
Outfit Allowance (Initial/Renewal)	Fully Exempt	u/s 10(14)(i); Rule 2BB(1)(f)
Compensation for Change of Uniform	Fully Exempt	u/s 10(14)(i); Rule 2BB(1)(f)
Kit Maintenance Allowance	Fully Exempt	u/s 10(14)(i); Rule 2BB(1)(f)
Uniform Allowance (Military Nursing Services – MNS)	Fully Exempt	u/s 10(14)(i); Rule 2BB(1)(f)
Special Winter Uniform Allowance	Fully Exempt	u/s 10(14)(i); Rule 2BB(1)(f)
Any payment from Provident Fund	Fully Exempt	u/s 10(11)
Payment of Compensation – Disability Pension	Fully Exempt	CBDT Circular F.No. 200/51/99-ITA1 dated 02.07.2001

Partially Exempt Pay & Allowances for Army Personnel & security personnel

Type of Allowance	Location / Criteria	Exemption Limit
Special Compensatory (Hilly Areas / High Altitude / Snow Bound / Avalanche)	Designated areas in Manipur, Arunachal, Sikkim, J&K, Himachal, etc.	₹800 per month / ₹300 per month / ₹7,000 for Siachen
High Altitude Allowance	(a) 9,000 to 15,000 feet (b) Above 15,000 feet	₹1,060 / ₹1,600 per month
Remote Locality / Border Area / Difficult Area / Disturbed Area Allowance	Andaman, Lakshadweep, NE states, HP, J&K, Uttarakhand, etc.	₹200 – ₹1,300 per month
Installations in Continental Shelf / Exclusive Economic Zone of India	Offshore installations	₹1,100 per month
Compensatory Field Area Allowance	Specific areas in Arunachal, Manipur, Sikkim, HP, UP, J&K	₹2,600 per month
Compensatory Modified Field Area Allowance	Areas in Punjab, Rajasthan, HP, NE states, Sikkim, WB, J&K, etc.	₹1,000 per month
Special Compensatory Highly Active Field Area Allowance	For Armed Forces across India	₹4,200 per month
Counter-Insurgency Allowance	For Armed Forces in designated areas away from base	₹3,900 per month
Island (Duty) Allowance	Andaman & Nicobar, Lakshadweep Islands	₹3,250 per month
Children Education Allowance	Whole of India	₹100 per child (max 2) per month
Hostel Expenditure Allowance	Whole of India	₹300 per child (max 2) per month
Transport Allowance (Disabled employee)	For visually/hearing/orthopaedically handicapped	₹3,200 per month
Underground Allowance	Employees working in mines	₹800 per month
Transport System Allowance (Non-daily allowance recipients)	For employees in transport system	70% of allowance up to ₹10,000/month

Standard Deductions for Salaried Employees (Applicable to All)

Deduction	Section	Limit
Standard Deduction	Sec 16(ia)	₹50,000
Professional Tax	Sec 16(iii)	As actually paid
Housing Loan Interest (Self-occupied)	Sec 24(b)	Up to ₹2,00,000

Deductions under Chapter VI-A (Investments & Payments)

Section	Purpose	Maximum Deduction
80C	LIC, PPF, NSC, ELSS, Tuition Fees, etc.	₹1,50,000
80D	Medical insurance premium	₹25,000 (₹50,000 for Sr. Citizens)
80E	Interest on Education Loan	No upper limit
80G	Donations	50% or 100% (subject to conditions)
80TTA/80TTB	Savings Interest (Non-Senior/Senior)	₹10,000 / ₹50,000

 The following are important key notes:

• Key tax planning tips for army personnel are to maintain records of postings and allowances received. And Army personnel must Maximize investments under Section 80C & 80D. Army personnel declare exempt allowances properly in ITR (especially for Form 16 reconciliation). And Army personnel have to use Form 10E in case of salary arrears to claim relief under Section 89(1). However,, in respect of the the New vs. Old Regime,, applicability is a a concern. The new regime offers lower tax rates but no exemptions/deductions. Choose wisely based on your income structure.
• Partially exempt means only the amount up to the specified limit is tax-free; excess is taxable. Allowances are linked to specific geographic locations, especially in difficult terrain, high altitude, disturbed,, or remote areas. Specific maps and official demarcations are often used to determine eligibility. Exemption for education/hostel/transport allowances is uniform pan-India.

Conclusion:

In summary,, we can say that following allowances are fully exempt allowances (Under Specific Sections) for Army Personnel & security personnel, i.e., gallantry awards—u/s 10(18), foreign allowances—u/s 10(7), Leave Encashment on retirement—u/s 10(10AA)(i), uniform/kit maintenance/outfit allowances—u/s 10(14)(i) read with Rule 2BB, disability pension compensation—CBDT Circular F.No.200/51/99-ITA1, provident fund withdrawals—u/s 10(11)

Similarly, in summary, partially exempt pay & allowances for army personnel & security personnel, exemptions are linked to section 10 of the Income Tax Act and specific CBDT notifications/circulars. Location-specific allowances (esp. for hilly or remote regions) vary based on districts/states and elevation. For allowances that are partially exempt, the remaining portion is taxable. Following are allowances exempt up to specified limits for Army Personnel & security personnel::

Allowance Type	Exemption Limit/Criteria
High Altitude / Avalanche / Snow / Hilly Area Allowance	Rs. 300 to Rs. 7,000/month based on location & altitude
Counter-Insurgency Allowance (Armed Forces)	Rs. 3,900/month
Special Compensatory Highly Active Field Area Allowance	Rs. 4,200/month
Island Duty Allowance	Rs. 3,250/month (Andaman, Nicobar, Lakshadweep)
Underground Allowance (mines)	Rs. 800/month
Transport Allowance (Handicapped)	Rs. 3,200/month
Children Education Allowance	Rs. 100/month per child (max 2 children)
Hostel Expenditure Allowance	Rs. 300/month per child (max 2 children)
Field/Modified Field/Remote Locality Allowances	Rs. 1,000–2,600/month (based on location)
Transport system duty allowances (non-DA recipients)	70% of allowance or Rs. 10,000/month (whichever is less)