Home / Money / Personal Finance /  Atal Pension Yojana (APY) to end for taxpayers from today: What’s now for them?

A pension is a source of monthly income for people in their elderly years, making it one of the most crucial personal finance decisions a salary earner should make. The Government of India's Atal Pension Yojana (APY), a pension programme, is targeted at employees in the unorganized sector. Based on the contributions made by the subscribers for their selected pension amount, subscribers will be eligible to get a minimum guaranteed pension per month once they reach the age of 60. As per the Finance Ministry's regulations, beginning on October 1 income taxpayers won't be allowed to enroll in the government's Atal Pension Yojana (APY). As of today, interested taxpayers have till today to sign up for APY; but, if they fail to do so, what alternative investing options will be available to them starting tomorrow? Let's find out.

Ms. Aditi Singh, Head of Strategy at Satin Creditcare Network Limited said “The Atal Pension Yojana was introduced on June 1, 2015, by the Government of India to provide social security to workers. This pension scheme was mainly for the unorganized sector. However, it was recently announced that any individual who is a taxpayer or has been one would not be eligible for this pension scheme. One of the major reasons for this is to direct wealth to the welfare of economically weaker people. Any person who has and has been a taxpayer will have to close their account. From effect on 1st October 2022, the government will shut down accounts of people with an account with Atal Pension Yojana who have been taxpayers and the sum amount will be returned to the subscriber."

She further added that “However, these taxpayers do not need to worry as there are many other places where they can invest their funds. They can avail the NPS (National Pension Scheme) as well as PPF (Public Provident Fund). Under NPS, one can receive tax benefits of up to Rs. 50,000 over and above the 80C investments, which is Rs. 1.5 lacs. PPF comes with lower risk as compared to NPS. PPF generates fixed interest rates per year, whereas the NPS return rate is subject to market conditions and can vary every year accordingly. Funds put in PPF are tax-deductible under 80C, up to Rs. 1.5 lacs. Additionally, the interest received on it is completely tax-free and the maturity amount is tax-free as well. The interest rate for PPF is between 7% to 8% and for NPS, it is between 9% to 12%. Taxpayers can also avail of good tax-saving ULIPs (Unit Linked Insurance Plan), which will help them invest as well as get insurance while saving on taxes."

Zubin Daboo,Head of Marketing, Epsilon Money Mart said “According to a gazette notification issued by the Ministry of Finance, any citizen who is or has been an income tax payer according to the Income Tax Act will not be eligible to join the Atal Pension Yojana or APY from October 1, 2022. APY is a scheme focused on workers in the unorganized sector. The scheme offers a guaranteed minimum pension per month at the age of 60 years. However, the minimum guaranteed pension depends upon the contributions of the subscribers. The APY is aimed mainly at the unorganized sector whose income may not be steady and/or whose jobs are such that they do not qualify for pension schemes – which are mandatory in the organized sector. Therefore if any taxpayer joins the scheme after Oct 1 or has joined before and is found to be a taxpayer then – according to the guideline - “the APY account shall be closed and the accumulated pension wealth till date would be given to the subscriber."

He further added that “For a taxpayer – there are many options that one can avail of – especially under Sec 80C (deduction of upto Rs. 1,50,000 per year) to reduce the taxable income. PPF, LIC Premiums, NSC or National Savings Certificates are just some of the options that can be availed of by an investor to avail of this deduction. One option investors should seriously consider is Equity Linked Savings Schemes or ELSS Funds. With a lock-in period of 3 years, ELSS funds not only help save tax but also help investors build wealth through exposure to equity funds. With a handsome category average return of 15.6% in a 3-year period, ELSS funds prove to be a lucrative option for investors to save tax and build wealth simultaneously."

What are the benefits of Atal Pension Yojana?

After reaching the age of 60, the APY will commence a minimum guaranteed pension of Rs. 1,000, Rs. 2,000, Rs. 3,000, Rs. 4,000, or Rs. 5,000 per month, based on the contributions made by the subscribers for their selected pension amount. Contributions can be made automatically from a savings bank account on a monthly, quarterly, or half-yearly basis.

“The benefit of minimum pension under Atal Pension Yojana would be guaranteed by the Government in the sense that if the actual realized returns on the pension contributions are less than the assumed returns for minimum guaranteed pension, over the period of contribution, such shortfall shall be funded by the Government. On the other hand, if the actual returns on the pension contributions are higher than the assumed returns for minimum guaranteed pension, over the period of contribution, such enhanced scheme benefits shall be passed on to the subscribers," says PFRDA.

Eligibility required to join APY

Any Indian citizen may enroll in the APY initiative irrespective of his/her employment status with Govt./Public Sector, however they must be between the age limit of 18 and 40 and have a savings bank account or post office savings bank account. Aadhaar may also be submitted at the time of enrollment since the APY programme is notified for such, although providing nomination and spouse details in an APY account is mandatory.

“As per the provisions of the Act, any individual who is eligible to receive such benefits under the APY will have to furnish proof of possession of Aadhaar number or undergo enrolment under Aadhaar authentication. Hence, it is desirable to provide Aadhaar Number for proper identification of the subscriber," says PFRDA.

Tax benefits available under APY

“Contributions made by an individual under the Atal Pension Yojana are eligible for the deductions under section 80CCD of the Income Tax Act, 1961. Maximum deduction allowed under section 80CCD (1) of the Income Tax Act, 1961 is 10% of gross total income subject to maximum deduction of Rs. 1,50,000 p.a. as specified under section 80CCE of the Income Tax Act. An additional contribution of Rs. 50,000 p.a. is eligible for an additional deduction of Rs. 50,000 p.a. under section 80CCD(1B) of the Income Tax Act, 1961. These deductions are subject to the fulfillment of the conditions mentioned in the Income Tax Act, 1961. Tax laws are subject to amendments from time to time. This is not a legal advice or tax advice and users are further advised to consult their tax advisors before making any decision or taking any action," mentioned Kotak Mahindra Bank on its website.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

ABOUT THE AUTHOR

Vipul Das

Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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