A quick guide to Atal Pension Yojana

Budget 2015-16 focused heavily on ensuring that working Indians have a retirement plan and incentivized investments into pension schemes.

First, there was the Rs. 50,000 additional tax benefit under Section 80CCD for contributions made to the National Pension Scheme. This benefit is for those who have already exhausted the Section 80C limit of Rs. 1,50,000.

Read more about Section 80 deductions here.

Then, in a big push to National Pension Scheme,  the Finance Minister Arun Jaitley said salaried individuals would soon have the option to switch from their de-facto retirement fund, the Employee Provident Fund.

What other changes were proposed this Budget? Read the full list here.

And finally, keeping the unorganized working class and their financial security in mind, Finance Minister Jaitley introduced Atal Pension Yojana — where people build a retirement corpus until the age of 60 and then a monthly pension of between Rs.1,000 and Rs.5,000 is given out.

To popularize this scheme, the government has said it would co-contribute 50% of the total contribution or Rs.1,000 per annum, whichever is lower, for subscribers who sign up in 2015 for 5 years. But the co-contribution by the government is only for non-income taxpayers and those who are not part of an existing social security scheme.

So in this scheme, subscribers make contributions of anywhere between Rs. 100 to Rs.1000 every month to build the corpus. This is debited from their bank account, therefore it is mandatory to have an active bank account.

Upon maturity though, unlike a regular pension scheme, there is no lump-sum portion. All the money immediately goes into giving back a monthly pension.

All those years of contributions not adding up to a big reward definitely makes the scheme unappealing. It instead slides to a monthly pension of Rs.5,000. Which brings us to the second point — if you signed up for the scheme today when you are 25, what would a monthly pension of Rs. 5,000 be 35 years from now?

With these points as drawbacks, it remains to be seen if this heavily promoted scheme will gain traction within the lower income group or if it would go down the same path as RGESS.

Feel free to write in to us at support@cleartax.in if you have any questions about pension, Section 80C or tax filing.


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