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Atal Pension Yojana (APY) : Tax Benefits, Exemptions & Eligibility

Having a source of income after retirement is necessary so that you can meet your lifestyle expenses even when you are not working. That is why many of you build up a retirement corpus for the golden years of your life. However, when it comes to the unorganized sector, i.e. the working poor, there is no earmarked corpus for retirement. The poor and backward class individuals need a retirement fund to help them lead a comfortable life after retirement. With this sentiment in mind, the Government of India launched the Atal Pension Yojana scheme in the Union Budget of the financial year 2015-16. This scheme overtook the Swavalamban scheme which existed earlier for creating a retirement pension for individuals. Let’s understand what the scheme is all about –

What is the Atal Pension Yojana scheme?

The Atal Pension Yojana scheme is a retirement oriented saving scheme which promises a fixed amount of pension to individuals after they retire. The scheme has been launched by the Government of India and it allows retirement savings for all types of individuals, particularly those belonging to the unorganized sector.

Features of Atal Pension Yojana

Here are the salient features of the Atal Pension Yojana (APY) scheme which you should know –

  • The scheme is administered and managed by the Pension Fund Regulatory and Development Authority (PFRDA)
  • The monthly pension payable on maturity of the scheme is guaranteed. There are five pension amount options of INR 1000, INR 2000, INR 3000, INR 4000 and INR 5000 and you can choose any amount as per your requirement.
  • You would have to contribute to the APY scheme throughout the duration of the scheme if you want to receive the guaranteed pension. The contribution amount depends on the pension amount that you choose and the age at which you opt for the APY scheme
  • Contribution to the scheme can be made monthly, quarterly or half-yearly. This contribution is automatically debited from your bank account through which you opt for the scheme.
  • The age at which the Atal Pension Yojana scheme matures is 60 years. Once you attain 60 years of age, you would start receiving guaranteed pensions from the corpus created.
  • The term of the APY scheme depends on your age. The scheme matures at 60 years of age and so, the tenure is calculated by deducting the age of the subscriber with 60. So, if the subscriber is 30 years of age, the contribution would have to be made for 30 years
  • You can increase or decrease the selected pension amount during the term of the APY scheme. This facility is allowed once every year in the month of April.
  • Existing subscribers of the Swavalamban scheme, which existed before the Atal Pension Yojana was launched, can easily migrate to the APY scheme. This migration would be automatic as the Swavalamban scheme has been replaced by the Atal Pension Yojana.

Eligibility criteria for opening an APY account

If you want to opt for Atal Pension Yojana, you would have to fulfil the below-mentioned eligibility criteria –

  • You should be an Indian citizen
  • You should be aged between 18 years and 40 years
  • You should have a savings account with a bank or a post-office
  • You should have an Aadhaar card to subscribe to the APY scheme. The Aadhaar card serves as the primary KYC document for the scheme
  • The name of the spouse and nominee would have to be provided when joining the Atal Pension Yojana scheme 
  • Only one APY account is allowed per individual. Multiple accounts cannot be opened in one name

How to opt for Atal Pension Yojana?

You can subscribe to the Atal Pension Yojana scheme through any bank or post office with which you have a savings account. The APY account can be opened online through the net banking facility offered by your bank or through the website of India Post. You can also visit the branch of your bank or post-office with which you have a savings account, fill up the account opening form, submit your Aadhaar card copy and open the account. The process is simple, easy and quick. If you are an existing customer of the bank or have an existing account with the post-office, the application is verified and accepted at the earliest and you can start saving towards the Atal Pension Yojana scheme.

Contribution amount payable for Atal Pension Yojana

The amount of contribution that you need to pay depends on the following factors –

  • Age at which you subscribe for the scheme
  • Amount of guaranteed monthly pension chosen
  • Mode of payment – monthly, quarterly or half-yearly

Here are the contribution rates at different combinations of the above-mentioned factors –

Age (in years)Guaranteed pension INR 1000Guaranteed pension INR 2000Guaranteed pension INR 3000Guaranteed pension INR 4000Guaranteed pension INR 5000
Contribution frequencyContribution frequencyContribution frequencyContribution frequencyContribution frequency
Monthly Quarterly Half-yearly Monthly QuarterlyHalf-yearly Monthly QuarterlyHalf-yearly Monthly Quarterly Half-yearlyMonthly Quarterly Half-yearly

Premature exit from Atal Pension Yojana

Though the APY scheme matures when you attain 60 years of age, premature withdrawal is allowed in case of a terminal illness. In such cases, you can exit from the scheme and avail the corpus in a lump sum. Similarly, in case of death of the subscriber, the spouse is given two choices. One, the spouse can choose to terminate the scheme and receive the accumulated corpus in lump sum. Two, the spouse can choose to continue the scheme and then receive the guaranteed pensions. In the latter case, the scheme would continue till the date the subscriber would have attained 60 years of age had he/she been alive.

Discontinuation of contribution

Once you opt for the Atal Pension Yojana, you are required to contribute towards the scheme periodically till you reach 60 years of age and the scheme matures. However, if the contributions towards the scheme are stopped, you face a penalty. Moreover, in case of continued default, the account can also be terminated. So, let’s understand the consequences of discontinuing contributions during the tenure of the scheme –

  • Penalty – if the periodic contribution is not paid, a penalty is levied. This penalty ranges from INR 1 to INR 10 per month depending on the amount of contribution. The penalty rates are as follows –
Amount of contributionThe applicable rate of penalty 
Up to INR 100/monthINR 1/month
INR 101 to INR 500/monthINR 2/month
INR 501 to INR 1000/monthINR 5/month
INR 1001/month and aboveINR 10/month 
  • Termination – if the contributions are not paid for six continuous months, the APY account is frozen. If the discontinuation continues for 12 months, the account would be deactivated after 12 months. Moreover, if it has been 24 months since you contributed towards the scheme, the APY account would be closed and you would be paid the accumulated balance of the account in a lump sum.

Benefits of Atal Pension Yojana

The Atal Pension Yojana offers various benefits for its subscribers which have made the scheme popular. These benefits include the following –

  • Guaranteed pension
    The amount of pension that you can receive on the maturity of the scheme is guaranteed. Even if the corpus accumulated is not sufficient to cover the monthly pension, the Government would contribute the deficit amount. This ensures that the pension would be guaranteed and you can plan your retirement accordingly. Especially for the lower-income class individuals, a guaranteed pension would help them lead a comfortable retired life.

  • Affordable contributions
    The contributions payable every month towards theAtal Pension Yojana scheme are quite affordable and thus, the scheme can be opened by all types of investors without worrying about affordability.

  • Disciplined savings for retirement
    By subscribing to the Atal Pension Yojana scheme, you are mandated to save for your retirement in a disciplined manner. Since the APY account is linked with your bank account, the contribution is made through auto-debit facility thereby creating forced savings. These savings, then, accumulate into a considerable corpus which helps in funding your retirement.

  • Government’s contribution 
    If any subscriber is not already covered under a Statutory Social Security Scheme and is not a taxpayer, the Government proposed to contribute 50% of the subscriber’s contribution or INR 1000, whichever is lower, to the APY scheme along with the subscriber. This contribution was allowed for subscribers who subscribed to the scheme between 1st June 2015 and 31st December 2015 and the contribution was promised for five years up to financial year 2019-20. The contribution was mainly done to supplement the contribution of the lower classes and this contribution helped the poor create a good corpus to receive higher pensions.

  • Flexibility
    The Atal Pension Yojana scheme is quite flexible in the sense that it allows you to increase or decrease the pension amount that you choose. This flexibility helps subscribers create the desired retirement corpus.

  • Continuity of pension even after death 
    If the subscriber dies after the account has matured and a pension is being paid to him/her the pension would not stop. If the subscriber is survived by his/her spouse, the pension would continue to be paid till the spouse is alive. Moreover, if the spouse also dies, the remaining corpus would be paid to the nominee and the scheme would terminate. Thus the Atal Pension Yojana scheme not only creates retirement income, but it also promises a lump sum in case of death of the annuitant.

  • Tax benefits 
    The Atal Pension Yojana scheme enjoys the same tax exemptions which are allowed to the National Pension System (NPS) scheme. Contributions to the APY scheme are allowed as a deduction under Section 80 CCD (1) up to INR 1.5 lakhs. Moreover, you can enjoy an additional deduction of up to INR 50,000 under Section 80 CCD (1B) thereby increasing the deduction limit to INR 2 lakhs. Thus, you can create a tax-saving retirement corpus by subscribing to the Atal Pension Yojana scheme.

Atal Pension Yojana tax exemption

As mentioned above, investments in the Atal Pension Yojana scheme qualify for a tax deduction. Let’s understand the detailed APY tax exemption which you can claim –

  • APY tax benefits on investments 
    Investments into the Atal Pension Yojana scheme are allowed as a deduction under Section 80CCD (1). Salaried individuals can claim a maximum deduction of up to INR 1.5 lakhs by investing in the APY scheme in a financial year. Self-employed individuals can claim a deduction on investments of up to 20% of their annual income subject to a maximum of INR 1.5 lakhs. This means that if the annual income of a self-employed individual is INR 5 lakhs, the maximum tax-saving investment would be allowed for up to INR 1 lakh. If the individual invests INR 1.5 lakhs, INR 50,000 would be taxable. However, deduction under Section 80 CCD (1) is allowed together with the deduction under Section 80C and Section 80CCC. Thus, you can claim a maximum deduction of INR 1.5 lakhs under all these Sections combined.Furthermore, the additional deduction can be claimed under Section 80 CCD (1B) on investment into the Atal Pension Yojana scheme. You can claim a deduction of up to INR 50,000 by investing in the scheme. This deduction is allowed in addition to the deduction of INR 1.5 lakhs available under Sections 80C, 80CCC and 80 CCD (1).

  • APY tax benefit on pensions received
    The pensions received under the Atal Pension Yojana scheme are considered to be a taxable income. These pensions would be added to your taxable income and would be taxed at your income tax slab rates.The Atal Pension Yojana scheme is an attractive guaranteed pension scheme for everyone. Especially for low-income group people, this scheme can prove to be beneficial in giving them a guaranteed pension in their old age. You can also subscribe to the scheme if you want to create a retirement fund for yourself and seek guaranteed pension. The scheme is affordable and also tax-saving making it an ideal retirement planning tool.