Per Indiana Instructions for Form IT-40, page 16:
If you cannot open the link above, alternatively you can click on the link for the Indiana IT-40 Booklet at the Indiana webpage for individual taxpayers for the following information:
The income on line 1 of Form IT-40 may include active or reserve military pay. If it does, you will be able to take a deduction (regardless of your age).
Also, if you are retired from the military or are the surviving spouse of a person who was in the military, you may be able to take this deduction. You will be eligible if:
Your deduction will be the actual amount of military income received (i.e. military pay, retirement pay and/or survivor's benefits) or $5,000, whichever is less. If both you and your spouse received military income, you may each claim the deduction for a maximum of $10,000.
Note. If you served in the Indiana National Guard or the reserve component of the armed forces during the tax year, see the National Guard and reserve component members deduction on page 20.