Income Tax 2025

Appearance

Deduction in respect of contribution to Agnipath Scheme. ​

125(1) ​

An assessee, being an individual who has enrolled in the Agnipath Scheme and subscribes to the Agniveer Corpus Fund on or after the 1st November, 2022, shall be allowed a deduction in the computation of his total income, of the whole of the amount paid or deposited in his account in the said Fund during the tax year.

125(2) ​

Where the Central Government makes any contribution to the account of an assessee in the Fund referred to in sub-section (1), the assessee shall be allowed a deduction in the computation of his total income of the whole of the amount so contributed.

125(3) ​

In this section,—

  • (a) “Agnipath Scheme” means the scheme for enrolment in the Indian Armed Forces introduced vide letter No. 1(23)2022/D(Pay/Services), dated the 29th December, 2022, of the Government of India in the Ministry of Defence;
  • (b) “Agniveer Corpus Fund” means a fund in which consolidated contributions of all the Agniveers and matching contributions of the Central Government along with interest on both these contributions are held.
Explanation

Section Summary: ​

This section provides a tax deduction for individuals enrolled in the Agnipath Scheme who contribute to the Agniveer Corpus Fund. The deduction applies to both the individual's contributions and any matching contributions made by the Central Government. The purpose is to incentivize participation in the Agnipath Scheme and provide tax relief to those contributing to the fund.

Key Changes: ​

  1. New Deduction: This is a new provision introduced to encourage enrollment in the Agnipath Scheme and contributions to the Agniveer Corpus Fund.
  2. Scope of Deduction: The deduction covers both the individual's contributions and the Central Government's matching contributions, which is a unique feature compared to other tax-saving schemes.

Practical Implications: ​

  1. For Individuals Enrolled in Agnipath Scheme:
    • Contributions made to the Agniveer Corpus Fund are fully deductible from their total income, reducing their taxable income.
    • Matching contributions by the Central Government are also deductible, providing additional tax benefits.
  2. For the Central Government:
    • This provision aligns with the government's objective of promoting the Agnipath Scheme by offering tax incentives to participants.
  3. Tax Planning:
    • Individuals can use this deduction to lower their tax liability while contributing to a government-backed fund.

Critical Concepts: ​

  1. Agnipath Scheme: A scheme introduced by the Ministry of Defence for short-term enrollment in the Indian Armed Forces.
  2. Agniveer Corpus Fund: A fund where contributions from Agniveers (participants in the Agnipath Scheme) and matching contributions from the Central Government are pooled, along with interest earned on these contributions.
  3. Deduction Mechanism:
    • The entire amount contributed by the individual and the Central Government is deductible from the individual's total income.
    • No upper limit is specified for the deduction, meaning the full contribution is eligible.

Compliance Steps: ​

  1. Enrollment in Agnipath Scheme: Ensure enrollment in the Agnipath Scheme on or after November 1, 2022.
  2. Contribution to Agniveer Corpus Fund: Make contributions to the Agniveer Corpus Fund during the tax year.
  3. Documentation:
    • Maintain proof of enrollment in the Agnipath Scheme.
    • Keep records of contributions made to the Agniveer Corpus Fund.
    • Retain documentation of any matching contributions made by the Central Government.
  4. Reporting:
    • Claim the deduction under Section 125 while filing the income tax return.
    • Provide details of contributions and matching contributions in the appropriate sections of the tax return.

Examples: ​

  1. Scenario 1:

    • An individual enrolls in the Agnipath Scheme on December 1, 2022, and contributes ₹50,000 to the Agniveer Corpus Fund in the same tax year.
    • The Central Government makes a matching contribution of ₹50,000.
    • The individual can claim a total deduction of ₹1,00,000 (₹50,000 + ₹50,000) from their total income.

  2. Scenario 2:

    • An individual contributes ₹1,00,000 to the Agniveer Corpus Fund, and the Central Government contributes ₹1,00,000 as a matching contribution.
    • The individual's taxable income is reduced by ₹2,00,000, leading to significant tax savings.

This section provides a straightforward tax benefit for participants in the Agnipath Scheme, encouraging both enrollment and contributions to the Agniveer Corpus Fund.