Section 80CCH of the Income Tax Act

What is Section 80CCH (Agnipath Scheme)?

Section 80CCH of the Income Tax Act introduced in the Union Budget 2023, provides for a tax deduction on contributions made to the Agniveer Corpus Fund. The scheme was launched by the Indian Government on June 14th, 2020. It aims to recruit young and talented individuals into the armed forces.

This benefit is available to individuals who have subscribed to the Agnipath scheme on or after November 1, 2022.

Features of Section 80CCH

• Purpose: To provide tax benefits to individuals enrolled in the Agnipath Scheme, which is a recruitment scheme for the Indian Armed Forces.

• Applicability: Individuals aged between 17.5 years to 21 years who are enrolled in the Agnipath Scheme on or after November 1, 2022.

• Tour-of-Duty Style: The scheme follows a tour-of-duty style, where individuals are commissioned as soldiers into the three segments of the armed forces.

• Conversion Opportunity: After a 4-year job tenure, 25% of "Agniveers" have the chance to convert to regular armed forces cadre.

• Allowances: Additional allowances for ration, risk and hardship, travel, etc., are provided as applicable. The scheme also includes death and disability compensation.

• SevaNidhi: Agniveers can receive SevaNidhi after completing their 4-year job tenure by contributing 30% of their monthly earnings to the Agniveer corpus fund. The government matches this contribution.

• Deduction for Contributions to Agniveer Corpus Fund:

  • You can claim a deduction equal to the entire amount contributed by you and the Central Government to the Agniveer Corpus Fund.

  • This deduction is available under both the old and new tax regimes.

• Tax Exemption for Corpus Fund Receipts: The amount received from the Agniveer Corpus Fund at the end of the four-year service period is fully exempt from income tax.

What are the Tax Benefits under Section 80CCH?

Following are some of the tax benefits provided under Section 80CCH of the Income Tax Act, 1961 that is available under both old vs. new tax regime:

1. Section 80CCH Tax Deductions:

   • The entire contribution by applicants and the Central Government to the Agniveer Corpus Fund qualifies for tax deductions under Section 80CCH of the income tax act.

   • Applicable to individuals who subscribed to the scheme on or after November 1st, 2022.

2. New Clause in Section 10 (12C):

   • Introduction of a proposed clause in Section 10 (12C) for tax exemptions on income received by applicants or their nominees through the Agnipath scheme.

3. Addition to Section 17 (1):

   • Suggestions for a new sub-clause under Section 17 (1) allowing the Central Government's contributions from the previous financial year to be considered as the applicant's salary.

   • Enables candidates to avail tax benefits under Section 80CCH of the Income Tax.

4. Tax Exemptions under Section 115BAC:

   • Government proposes tax exemptions under Section 115BAC on the Central Government's contributions to the scheme.

   • Particularly beneficial for individuals following the new tax regime.

5. Effective Date:

   • All amendments are effective from April 1st, 2023.

   • These changes will continue to be applicable in the upcoming assessment years.

Summing It Up

Section 80CCH of the Income Tax Act offers valuable tax deductions for contributions made by both applicants and the Central Government to the Agniveer Corpus Fund. This provision introduces additional clauses in Sections 10 and 17, providing tax exemptions on scheme-related income and allowing Central Government contributions to be considered as part of the applicant's salary. Furthermore, the amendment extends to Section 115BAC, ensuring tax benefits for individuals under the new tax regime.