To amend title 38, United States Code, to limit the amount of recoupment from veterans' disability compensation that is required in the case of veterans who have received certain separation payments from the Department of Defense.

Limits the amount of a veteran's disability compensation that may be deducted by reason of the receipt of military separation pay or a Department of Defense separation benefit to 75 percent of that pay or benefit. Makes such provision effective for compensation payments made by the Secretary of Veterans Affairs for months beginning on or after October 1, 1996.