I am a retired Army officer and drawing pension on superannuation as per pension payment order (PPO) issued to me. In addition to the pension, I am also getting disability element (not disability pension) as I was suffering from a disability which was more than 20% and attributable to military service.
For this disability, a monthly sum proportionate to the percentage of disability under the existing rules is also given to me.As per Govt. of India, Min of Fin dept of Revenue CBDT inst no: 2/2001 forwarded vide letter no; F/200/51/99/T-1 dt.02 July 2001, military persons getting disability pension consisting of two components (service element and disability) are exempted from paying income tax on the complete disability pension.
Source : http://www.tribuneindia.com/news/business/disability-pension-is-tax-free/414213.html