Section 10(12C)- Tax Exemption on Payments from Agniveer Corpus Fund

Section 10(12C) of the Income Tax Act, 1961 provides important tax benefits for individuals enrolled in the Agnipath Scheme, a short-term service program for the Indian Armed Forces. This provision specifically deals with the tax treatment of payments received from the Agniveer Corpus Fund upon completion of service.

Key Provisions of Section 10(12C)

Under Section 10(12C), any payment received from the Agniveer Corpus Fund by a person enrolled under the Agnipath Scheme or their nominee is completely exempt from income tax. This exemption applies regardless of whether the recipient opts for the old or new tax regime .

Important features of this exemption:

1. Complete Tax Exemption: The entire amount received from the Agniveer Corpus Fund (called ‘Seva Nidhi’) is tax-free .
2. Applicability: Available to Agniveers (participants in the Agnipath Scheme) enrolled on or after November 1, 2022 .
3. Nominee Benefit: The tax exemption extends to payments made to nominees in case of the Agniveer’s death .
4. No Maximum Limit: There is no cap on the exempt amount – the entire corpus payment qualifies .

The Agnipath Scheme and Agniveer Corpus Fund

To understand Section 10(12C), it’s essential to know about the Agnipath Scheme:

• A 4-year tour-of-duty style program for youth aged 17.5-21 years to serve in the armed forces .
• Participants (Agniveers) contribute 30% of their monthly salary (₹4.76 lakh to ₹6.92 lakh annually) to the Agniveer Corpus Fund .
• The government matches this contribution (30% of salary) .
• After 4 years, Agniveers receive the accumulated corpus (contributions + interest + government match) as a lump-sum ‘Seva Nidhi’ payment .

Practical Examples of Section 10(12C) Application

Example 1: Standard Completion of Service

Agniveer Rahul completes 4 years of service with the following details:

• Monthly Salary (Year 4): ₹57,600 (₹6.92 lakh annually)
• Monthly Contribution (30%): ₹17,280
• Government Match: ₹17,280
• Total Annual Contributions: ₹4,14,720 (₹17,280 x 12 x 2)
• 4-Year Contributions: ₹16,58,880
• Estimated Interest (7% p.a.): ₹2,60,000 (approx.)
• Total Corpus: ₹19,18,880

Tax Treatment:

• The entire ₹19,18,880 received as Seva Nidhi is tax-exempt under Section 10(12C) .
• No tax is payable on this amount regardless of Rahul’s other income .

Example 2: Premature Exit Due to Disability

Agniveer Priya serves for 2 years before being medically discharged:

• Total Contributions (self + government): ₹8,29,440
• Interest: ₹60,000 (approx.)
• Total Corpus: ₹8,89,440
• Additional Disability Compensation: ₹10 lakh (as per scheme rules)

Tax Treatment:

• The ₹8,89,440 from the corpus is tax-exempt under Section 10(12C) .
• Disability compensation may have separate tax treatment (not covered by 10(12C)).

Example 3: Nominee Receipt After Death

Agniveer Arjun dies after 3 years of service:

• Total Contributions (self + government): ₹12,44,160
• Interest: ₹1,50,000 (approx.)
• Total Corpus: ₹13,94,160
• Nominee (his mother) receives the amount

Tax Treatment:

• The ₹13,94,160 received by the nominee is fully tax-exempt under Section 10(12C) .

Related Tax Benefits

The Agnipath Scheme offers additional tax advantages:

1. Section 80CCH: Deduction for contributions made to the Agniveer Corpus Fund (both individual and government contributions) .
   • Under old regime: Both contributions deductible
   • Under new regime: Only government contribution deductible
2. Section 17(1): Government’s contribution is treated as salary but gets offset by 80CCH deduction .

Comparison with Other Schemes

The Agniveer Corpus Fund’s tax treatment is more favorable than many other retirement/savings schemes:

• EPF: Interest on contributions above ₹2.5 lakh is taxable .
• NPS: Only 60% of corpus is tax-free at withdrawal .
• Agniveer Fund: 100% of corpus payment is tax-exempt .

Documentation and Process

To claim this exemption:

1. The Armed Forces will provide appropriate documentation at the time of payment.
2. The exempt amount should be reported in ITR but claimed as exempt under Section 10(12C) .
3. For nominees, death certificate and nomination documents may be required .

Section 10(12C) makes the Agnipath Scheme financially attractive by ensuring that Agniveers receive their hard-earned savings tax-free, providing a solid financial foundation as they transition to civilian life or continue serving in the armed forces (25% are retained after 4 years) . This exemption, combined with the deduction under Section 80CCH, creates a comprehensive tax benefit structure for participants in this national defense initiative.