Per Indiana Instructions for Form IT-40, page 17:
Line 7 - Military Service Deduction
Important. The military service deduction and the military retirement income and/or survivor’s benefits deduction are reported in two different places.
The income on line 1 of Form IT-40 may include military pay from active duty, National Guard, and/or the reserve component of the armed forces (reserve). If it does, you may be eligible to take this deduction.
Military Retirement Income and/or Survivor’s Benefits Deduction
The income on line 1 of Form IT-40 may include military retirement income and/or survivor’s benefits. If it does, you (and/or your spouse, if married filing jointly and both qualify) may be eligible to take this deduction.
New. The taxability of this income is being phased out over a four-year period of time. Beginning in 2019, the $6,250 maximum amount eligible to be deducted has increased. You may be eligible to deduct up to $6,250 of these benefits plus 25 percent of the amount received that exceeds $6,250.
Use the worksheet on page 21 of the IT-40 Instructions to figure your deduction.