The new AR 135-381 is a bit confusing, and might have been intentionally written that way...
2-4, part 2, paragraphs (h) and (m)
h. RC members may receive both INCAP pay and Department of Veterans Affairs (VA) benefits. VA benefits are not
taxable and do not meet the definition of earned income. As a result, INCAP pay will not be offset by VA benefits received.
m. RC members receiving VA benefits may elect to receive either military pay or VA pay under DOD 7000.14–R,
There's over 1000 pages in DoD 7000.14-R, but searching over it I've yet to find anything that contradicts Concurrent Payment of both INCAP pay and VA Disability Benefits. The thing is, INCAP is NOT considered Active Duty Pay "37 U.S.C. § 204(g), (h) and (i) are made at a time when reservists are no longer in an "active duty" status and do not otherwise represent "active service pay." [quoted from a VA Legal Counsel opinion, circa 1990]. INCAP pay (from what I've found so far) isn't even mentioned in DoD 7000.14-R.
Boiling it down...
Rule (A), A service member can NOT receive Active Duty Pay and VA Disability Pay at the same time... according to the Law.
Rule (B), A RC member receiving INCAP must have "Earned Income" deducted from any INCAP pay they receive.
But here's where the wheels fall of the bus for the Recoupment actions...
INCAP pay is NOT Active Duty Pay... and does NOT fall under rule (A),
and VA Disability benefits are NOT "Earned Income"... and do NOT fall under rule (B).
So for Recoupment to be done Legally, the Law [37 U.S.C. § 204] must be changed to include INCAP pay along with Active Duty pay for rule (A) to apply, since I don't think there's a path (nor should there be) to start counting VA Disability Benefits "Earned Income".
Intentionally confusing seems to be the point and a matter of policy for far too long, although I completely agree with your assessment when going down the policy rabbit hole.
I have attached a partial draft presentation submitted to the Army HRC OIG in 2015 after the State ARNG OIG replied to my Action Request concerns over receipt of INCAP Pay and disability benefits in determining that "per AR 135-381 Member is not allowed to receive disability pay and incapacitation pay for the same disabling condition."
Clearly that single sentence OIG reply to this complex issue was missing the point, lacking any depth of understanding or context, and essentially was just telling me to go away.
The attached material reviewed (and hyperlinked to) many of the reference sources we have cited on this same subject matter going back far too long without resolution for those who have been left behind to fight alone for a basic level of worker's compensation, due process, and justice against the very organization they swore an oath to serve and defend.