It is proposed in Finance Bill 2023 that the Agniveer Corpus Fund payment received by Agniveers enrolled in the Agnipath Scheme, 2022 be exempt from income tax. In addition, it is proposed to allow Agniveer members to deduct from their total income any contributions made to their Seva Nidhi account by taxpayers or the Central Government.
1. In accordance with the Government’s decision to implement the Agnipath Scheme, 2022 the Ministry of Defence has started enrolment of Agniveers in the Indian Armed Forces, beginning on November 1, 2022.
2. The Agniveer Corpus Fund is defined as a fund in which the consolidated contributions of all Agniveers under the Scheme, as well as matching contributions from the Government, are held in their respective accounts, along with interest on these contributions. The Agniveer scheme and the Agniveer Corpus Fund will be administered by the Ministry of Defence (MoD) and will include the following features:
i) Each Agniveer is responsible for contributing 30% of his monthly customised Agniveer Package to the Agniveer Corpus Fund. Furthermore, the government will make a matching contribution to the ‘Agniveer Corpus Fund’. The government will also pay the subscriber interest on the contributions in his account as approved from time to time.
(ii) Upon completion of the four-year engagement period, Agniveers will be paid a one-time ‘Seva Nidhi’ package consisting of their contribution plus interest and a matching contribution from the government equal to the accumulated amount of their contribution plus interest. ‘Seva Nidhi’ refers to the salary package provided to an Agniveer by the Agniveer Corpus Fund.
3. In order to deduct from Agniveer’s total income any contribution made by him or the Central Government to his Agniveer Corpus Fund account, and to exempt from tax any payment received by Agniveer or his nominee from the Agniveer Corpus Fund, the following amendments are proposed:
i) It is proposed to add a new clause (12C) to section 10 of the Income Tax Act, 1961, stating that any payment received from the Agniveer Corpus Fund by a person enrolled in the Agnipath Scheme, 2022, or the nominee of such person, is exempt from income tax.
ii) It is also proposed to add a new section 80CCH to the Income Act of 1961 to provide that an assessee who is enrolled in the Agnipath Scheme and subscribes to the Agniveer Corpus Fund on or after November 1, 2022, shall be allowed a deduction from his total income of the amount deposited by him as well as the amount contributed by the Central Government to his account in the Agniveer Corpus Fund.
iii) For the purposes of sections 10(12C) and 80CCH, it is proposed to define ‘Agnipath Scheme’ as a scheme introduced by the Central Government for enrolment in Indian Armed Forces, and ‘Agniveer Corpus Fund’ as a fund defined in para 2(c) of the Agnipath Scheme notified by the Central Government.
iv) It is also proposed to insert a new sub-clause in clause (1) of section 17 of the Income Tax Act, 1961, stating that the contribution made by the Central Government to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to in section 80CCH in the previous year shall be considered as salary of that individual.
(v) It is also proposed that an individual enrolled in the Agnipath Scheme and subscribing to the Agniveer Corpus Fund receive a deduction for the government contribution to his Seva Nidhi under the new tax regime of section 115BAC [sub-section (2) of section 80CCH].
4. These amendments are proposed in Clauses 5, 10, 39, and 50 of the Finance Bill 2023, to take effect on April 1, 2023, i.e. from the assessment year 2023-24 onwards.
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