Section 80CCH of the Income Tax Act

The Government of India introduced the Agnipath scheme on June 14, 2020. Its purpose was to admit young and talented individuals into the armed forces. It permitted applications from individuals between the ages of 17.5 and 21 yea₹.

The scheme follows a tour-of-duty approach where individuals will be deputed as soldiers into three branches of the armed forces. 25% of these ‘Agniveers’ can get converted to a regular armed force cadre upon completion of a period of service of four yea₹.

The annual income of soldiers enrolled in this scheme is approximately ₹4.76 lakhs. In the fourth year of service, this income increases to about ₹6.92 lakhs. There are also allowances for travel, ration, risk and hardship, etc., as and when a candidate is eligible. Moreover, the scheme includes death and disability compensation.

Individuals participating in the Agnipath scheme are eligible to receive SevaNidhi. It is a specified amount of money given on completion of the four-year job tenure. To qualify, participants must deposit 30% of their monthly earnings into the Agniveer corpus fund. Money in the participants’ accounts is further augmented by a contribution from the Central Government, which equals the participant’s contribution.

The Agniveer corpus fund comprises contributions by an individual and the Central Government, along with the interest accrued on both these contributions. Interest will accumulate on the total principal for over four yea₹, creating a maturity amount of approximately ₹10.04 lakhs plus applicable interest.

Section 80CCH was introduced by the government to ensure all income under the Agnipath scheme remains tax-free.

The Union Budget 2023 announced the addition of Section 80CCH of the Income Tax Act. It offers tax deductions on contributions made to the Agniveer corpus fund. The benefit can be availed by candidates who have applied for the Agnipath scheme on or after November 1, 2022.

Objective

The section provides tax benefits to the participants of the Agnipath scheme, a recruitment program for the Indian Armed Forces.

Applicability

It applies to individuals who have enrolled for the scheme on or after November 1, 2022. They must fall in the age bracket of 17.5 to 21 years.

Tour-of-Duty Approach

The nature of the scheme is tour-of-duty, where candidates get deputed as soldiers into the three branches of the armed forces.

Conversion Opportunity

25% of these talented individuals or ‘Agniveers’ can become regular armed forces cadres after completing their four-year job tenure.

Allowances

Eligible candidates receive allowances for travel, risk and hardship, ration, etc. There is also compensation for disability and death.

SevaNidhi

Once ‘Agniveers’ complete a four-year job tenure, they are entitled to receive SevaNidhi. It is a combination of contributions made by the individual (30% of monthly earnings) and the Central Government (equal to the individual’s contributions).

Deductions Eligible on the Agniveer Corpus Fund

Individuals can claim the entire amount of the Agniveer corpus fund as a deduction.

The deduction is applicable under the old and new tax regimes.

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.

Section 80CCH offers the following benefits under the old and new tax regimes:

Tax Deductions u/s 80CCH

The contributions made to the Agniveer corpus fund by individuals and the Central Government are eligible for tax deductions under 80CCH. All individuals who have enrolled on the scheme on or after November 1, 2022, can claim the benefits.

Addition of a Clause in Section 10

The authorities have also proposed the addition of a clause in Section 10 - clause (12C). It pertains to the exemptions applicable to earnings received by candidates or their nominees through the Agnipath scheme.

Addition of a Sub-clause Under Section 17(1)

A proposal to add a sub-clause under Section 17 (1) is also submitted. This clause will allow applicants to disclose the Central Government’s contributions from the previous financial year as salary. Moreover, it will allow applicants to claim tax benefits u/s 80CCH.

Taxes Exempted Under Section 115BAC

The government has also proposed tax exemptions on the contributions made by the Central Government under Section 115BAC. Individuals following the new tax regime can benefit from the same.

Effective Date

These amendments are effective from April 1, 2023, and valid in the subsequent assessment years.

In 2024, the income tax department shared new Income Tax Return (ITR) forms for the assessment year 2025-2026 and financial year 2024-2025. It included a new column in ITR 1 and four forms, wherein the individual has to disclose the amount eligible for deduction under section 80CCH of the Income Tax Act.

The following example illustrates tax calculations with different eligible deductions under both regimes.

Tax Payable - Old Regime

Gross Salary: ₹8,00,000

House Rent Allowance: ₹50,000

Standard Deduction: ₹50,000

Deductions u/s 80C, 80CCC, 80CCD (1): ₹1,50,000

Total Deductions: ₹2,50,000

Net Taxable Income: ₹5,50,000

Tax Calculation

Up to ₹2,50,000 - Nil

₹2,50,001 to ₹5,00,000 (5%) - ₹12,500

₹5,00,001 to ₹10,00,000 (20%) - ₹10,000

Above ₹10,00,001 (30%) - Nil

Income tax: ₹22,500

Health and Education Cess @4%: ₹900

Total tax payable: ₹23,400

The old tax regime allows tax exemptions and deductions, as given below.

80C - includes deductions of ₹1,50,000 on investments made in ULIPs, life insurance, mutual funds, pension schemes, government saving schemes, etc.

80CCD - covers deductions of ₹50,000 on investments made in the National Pension Scheme (NPS)

80D - covers deductions on insurance premium payments made for yourself, spouse, dependent children or parents

80TTA - covers interest on savings account

80G - cove₹ donations made to charitable organisations

Tax Payable - New Regime

Gross Salary: ₹8,00,000

Standard Deduction: ₹50,000

Total Deductions: ₹50,000

Net Taxable Income: ₹7,50,000

Tax Calculation

Up to ₹3,00,000 - Nil

₹3,00,001 to ₹6,00,000 (5%) - ₹15,000

₹6,00,001 to ₹9,00,000 (10%) - ₹15,000

₹9,00,001 to ₹12,00,000 (15%) - Nil

₹12,00,001 to ₹15,00,000 (20%) - Nil

Above ₹15,00,000 (30%) - Nil

Income tax: ₹30,000

Health and Education Cess @4%: ₹1,200

Total tax payable: ₹31,200

*The new tax regime allows the following deductions in addition to the standard deduction.

Section 80CCD2 - 80CCD2 covers the employer’s investment in NPS

Section 80CCH - 80CCH includes contributions to the Agniveer corpus fund

Section 80CCH allows you to claim tax benefits on the contributions made to the Agniveer corpus fund. These contributions are made in equal proportions by applicants of the Agnipath scheme and the Central Government.

Another deduction you can claim under Section 80C is the premium paid for a medical insurance plan. Whether you buy health insurance online or offline, you can save up to ₹25,000 as deductions on health insurance premiums paid for yourself, spouse, or dependent children.

TATA AIG offers comprehensive coverage, including pre-existing disease health insurance, to help you avail of financial protection for your recurring medical expenses.