Section 80CCH of Income Tax

During the 2023 Budget speech, Finance Minister Nirmala Sitharaman declared the addition of Section 80CCH to the Income Tax Act. Its purpose is to provide tax exemptions for income gained via the Agnipath scheme. To know what is 80CCH in detail, you first need to have a clear understanding of the scheme itself. 

Read on to know more!

What is the Agnipath Scheme?

To induct young and talented individuals into the armed forces, the Indian Government launched the Agnipath scheme on June 14th, 2020. Individuals aged between 17.5 years to 21 years will be eligible to apply for it. It is a tour-of-duty style scheme where individuals would be commissioned as soldiers into the three segments of the armed forces. After a job tenure of 4 years, 25% of "Agniveers" will get a chance to get converted to a regular armed forces cadre. 

Soldiers participating in this scheme will receive an approximate annual salary of ₹4.76 lakh, which will increase to nearly ₹6.92 lakh in their final year of service. In addition, eligible candidates will receive allowances for ration, risk and hardship, travel, and other applicable benefits. The scheme also includes provisions for death and disability compensation.

Apart from this, candidates are also eligible to get SevaNidhi, which is a sum receivable after completing their 4-year job tenure. For this, individuals must contribute 30% of their monthly earnings to the Agniveer corpus fund. The central government will also match this contribution and add it to the candidates' accounts. 

The entire principal will accumulate interest over 4 years, and applicants will get a maturity corpus of almost Rs.10.04 lakh (plus applicable interest). To ensure all income under this scheme remains tax-free, the authorities introduced Section 80CCH deduction. 

What are the Tax Exemptions Under Section 80CCH?

Section 80CCH of the income tax act states that the entire amount contributed by applicants and the Central Government to the Agniveer Corpus Fund is applicable for tax deductions. This benefit is available to those individuals who have subscribed to this scheme on or after November 1st 2022. 

Moreover, authorities have proposed introducing a new clause in Section 10(12C). This clause facilitates tax exemptions on income received by applicants or their nominees under the Agnipath scheme. 

There have also been suggestions for adding a new sub-clause under Section 17's clause (1). The addition of the clause would allow the Central Government's contributions during the previous financial year to be considered as the applicant's salary. It will enable candidates to opt for tax benefits under Section 80CCH of Income Tax.    

Lastly, the government also suggested tax exemptions under Section 115BAC on Central Government's contributions towards the scheme. This will benefit individuals following the new tax regime. 

All the above amendments took effect on April 1st, 2023, and will remain valid in the coming assessment years. 

The Income Tax Return (ITR) forms (ITR 1 and 4) for AY 2025-2026 have been amended so that the individual can disclose the amount eligible for deduction under section 80CCH.

Deductions Eligible on the Agniveer Corpus Fund

Individuals can claim the entire amount contributed by them to the Agniveer corpus fund as a deduction. This deduction is applicable only under the old regime.

Individuals can also claim the entire amount of contribution made by the Central Government to the said account of the assessee in the Agniveer Corpus Fund. This deduction is available to the assessee under both the regimes i.e. old and new regime. 

Important Note: Individuals cannot claim deduction on the contributions made by him under the scheme if he opts to pay taxes under the New tax regime.

Tax Exemption for Corpus Fund Receipts

The sum of money received from the Agniveer corpus fund after completing four years of service is tax-exempt.

Final Word

Taking advantage of this government scheme offers a promising path to a successful career in the armed forces for young men and women. If your child or someone you know qualifies for the Agnipath scheme, be sure to inform them about the various income tax benefits available under Section 80CCH.