Atal Pension Yojana (APY): Features, Benefits, Tax Treatment and Review

Atal Pension Yojana (APY) was launched to provide life-long pension to the underprivileged and workers in the unorganized sector. If you join the scheme, the Central Government guarantees you and your spouse a minimum pension for life.

Atal Pension Yojana (APY): Benefits and Scheme Details

Based on your contribution per month, you will receive a minimum guaranteed pension ranging from Rs 1,000 per month to Rs 5,000 per month. You will receive this pension from the age of 60 until death. After you, your spouse will get the same pension. This pension is guaranteed by the Government.

However, if your contributions earn better returns than planned, in that case, you may be eligible for an even higher pension. Therefore, the Government guarantees the minimum pension.

After the demise of both subscriber and the spouse, the pension corpus, as at the age of 60, will be returned to the nominee.

The APY benefits can be summarized as follows:

1. The subscriber gets the pension.
2. After the demise of the subscriber, the spouse continues to receive the pension.
3. After the demise of spouse, the pension corpus, as at the age of 60, is returned to the nominee.

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What is the eligibility criteria for Atal Pension Yojana (APY)?

You need to be an Indian Citizen.

Minimum Entry Age: 18 years

Maximum Entry Age: 40 years

You need to hold a savings bank account in India.

You can open only 1 Atal Pension Yojana Account.

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How to open Atal Pension Yojana Account?

You can visit your nearest bank branch and enroll for the scheme. You can view the Atal Pension Yojana application form here.

Alternatively, you can also open Atal Pension Yojana Account online through eNPS portal.

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How to make contributions to Atal Pension Yojana Account?

You can contribute in monthly, quarterly or half-yearly installments. The installments will be auto-debited from your bank account.

In case your bank account does not have sufficient balance, you will have to pay the contribution along with next month’s instalment and a penalty of Re. 1 per Rs 100 of default.

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What is Government Co-contribution?

The Government will also contribute 50% of your total annual contribution up to a maximum of Rs 1,000 per year. The Government shall co-contribute only for 5 years i.e. from FY2016 to FY2020.

However, there are a few pre-conditions to be met before Government contributes to your APY account.

1. You must have enrolled for the scheme before March 31, 2016. (the date is long done. Therefore, any new subscribers won’t be eligible for Government co-contribution)
2. You must not be an income tax payer.
3. You must not be covered under any statutory social security scheme such as the following:

• Employees’ Provident Fund and Miscellaneous Provision Act, 1952
• The Coal Mines Provident Fund and Miscellaneous Provision Act, 1948
• Assam Tea Plantation Provident Fund and Miscellaneous Provision, 1955
• Seamens’ Provident Fund Act, 1966
• Jammu Kashmir Employees’ Provident Fund & Miscellaneous Provision Act, 1961
• Any other statutory social security schemes.

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How much pension will you get under APY? Atal Pension Yojana Maturity Benefits?

Depends on your contribution amount. The Government has defined a matrix for this.

This chart can also be referred to as Atal Pension Yojana Calculator.

You can view the pension amount (for a level of contribution) and the purchase price that will be returned to your nominee (once you and your spouse are no more).

Clearly, the monthly investment required to attain a certain level of pension will increase with your age.

Consider an example. A subscriber who enters Atal Pension Yojana at the age of 35 needs to be Rs 902 per month (till the age of 60) to be eligible for the pension of Rs 5,000 per month after the age of 60.

If such a person wants a pension of only Rs 3,000 per month after 60, he/she needs to invest Rs 543 per month.

After the demise of both subscriber and spouse, the accumulated corpus (Rs 1.7 lacs to Rs 8.5 lacs) is returned to the nominee.

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Can I increase or decrease the pension amount under APY after registration?

It is possible that you may start with a pension amount. However, in the future, you may want to increase (or even decrease) your pension amount. This can be done once per year during the money of April.  Such increase or decrease is permitted only during the accumulation stage i.e. before the age of 60.

Further details are provided in this circular from PFRDA dated July 6, 2016.

For an increase in pension amount, the subscribers will have to pay a differential amount of contribution at the rate of 8% p.a. on a monthly compounding basis.

In case of a decrease in pension amount, the excess amount of contribution collected from the subscriber will be refunded along with the returns generated. 

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What happens if the subscriber passes away BEFORE maturity (before completing 60 years)?

In the event of the death of the subscriber before maturity, the spouse of the subscriber shall be given an OPTION to contribute to the APY account of the subscriber. Such account shall be maintained in the name of the spouse. The spouse can contribute to the APY account for the remaining period (until such time the original subscriber would have attained the age of 60).

This is an interesting point. The account maturity still depends on original subscriber’s age and not the spouse’s age.

The spouse shall receive the same pension for life. After the death of the spouse, the pension corpus (as at the time of maturity) will be passed to the nominee.

In case the spouse does not exercise the option to continue, the accumulated corpus shall be passed on to the spouse.

In case the subscriber is unmarried or the spouse is not alive, the accumulated corpus shall be passed on to the nominee.

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What happens if the APY subscriber passes away AFTER maturity (after the age of 60)?

In the event of subscriber’s death, the pension will continue to the spouse. After the death of the spouse, the amount standing in your pension corpus at the age of 60 will be passed on to your nominee.

If the spouse passed away before the subscriber did, the pension corpus, as at the age of 60, will be passed to the nominee.

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Can an APY subscriber exit voluntarily before 60 years of age?

From the relevant circular, I could not see any way to exit the scheme before the age of 60 except in case of demise of the subscriber or in case of serious illnesses.

The illnesses referred are as per PFRDA Exit and Withdrawal under NPS Regulations, 2015.

Specified illnesses are cancer, kidney failure (end state renal failure, primary pulmonary arterial hypertension, multiple sclerosis, major organ transplant, coronary artery bypass graft, aorta graft surgery, heart valve surgery, stroke, myocardial infarction, coma, total blindness and paralysis.

However, when I looked at the Voluntary Exit form, it was allowed even for reasons such as inability to pay APY contributions or need of urgent funds. Therefore, I assume voluntary exit is completely your choice.

An important point about voluntary exit from Atal Pension Yojana

In case a subscriber, who has availed Government co-contribution under APY, chooses to voluntarily exit APY before the age 60, he/she shall only be refunded the contributions made by him to APY, along with the net actual interest earned on his contributions (after deducting the account maintenance charges). The Government co-contribution and the interest/income earned on such Government co-contribution shall not be returned to such subscribers.

As I understand, this clause applies to exit on subscriber demise before the age of 60 too.

You can go through PFRDA circular dated May 2, 2016 for voluntary exit before the age of 60 for more details.

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Can I have both NPS and Atal Pension Yojana account?

As I understand, you CAN NOT have both NPS and Atal Pension Yojana Accounts. However, I am not too sure of this.

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Atal Pension Yojana: Tax Benefits for Investment

You are entitled to tax benefit under Section 80CCD(1) and Section 80CCD(1B) for investment in Atal Pension Yojana.

Under Section 80CCD(1), you can avail tax benefit for investment in APY up to 20% of your annual income (subject to a maximum of Rs 1.5 lacs per financial year). This comes within the overall cap of Rs 1.5 lacs under Section 80C.

Under Section 80CCD(1B), you can avail an additional tax benefit of up to Rs 50,000 per financial year for investment in NPS.

This was notified by Central Board of Direct Taxes in its circular dated February 19, 2016.

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Atal Pension Yojana: Taxation of Benefits after Maturity

The pension income (annuity income) received after maturity is taxable in the hands of the subscriber or spouse in the year of receipt.

I am not very sure of the tax treatment of the lump sum received by the nominee after the death of the subscriber/spouse.

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How to view my Atal Pension Yojana Statement?

You can view your Atal Pension Yojana statement online at this link. You need to follow steps to view your statement.

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Should you invest in Atal Pension Yojana?

This scheme is intended for workers in the unorganised sector and may be a good product for them. Depending upon age at entry, the rate of return required to reach the requisite corpus (Rs 8.5 lacs for Rs 5,000 pension) shall fall between 7.5% to 8% p.a.

Rs 5,000 per month or Rs 60,000 per annum is about 7% p.a. on Rs 8.5 lacs. We don’t know what the interest rates will be like by the time you turn 60. Still, 7% p.a. for an annuity with return of purchase price is not too bad.

However, the annuity income is taxable, which may bring down return. Having said that, it is possible that the target segment’s income may not be above tax exemption or the effective tax rate may be quite low.

Yes, your investment gets stuck until the age of 60. However, for this income segment, it may be difficult to save in a disciplined fashion. APY may add a lot of value. However, a subscriber must continue to contribute. Moreover, subscribers must also understand that APY pension alone may not be enough for retirement. They must make other investments too.

For others, Atal Pension Yojana may not make much sense. The annuity income is taxable. Even Rs 5,000 per month may not make much difference to your retirement income. If you must participate in such a scheme, NPS is a much better choice. You have much greater flexibility at the time of retirement. For instance, you need to purchase an annuity for only 40% of the accumulated corpus in case of NPS.

Additional Links

Atal Pension Yojana FAQs

http://www.jansuraksha.gov.in/

Brief on Atal Pension Yojana

PFRDA page of Atal Pension Yojana