Agnipath Scheme Deduction 2026-27: Agniveer Corpus Fund Tax Rules (Income Tax Act 2025)

Under the Income Tax Act 2025, section 125 gives an Agniveer a deduction for the whole amount they pay into the Agniveer Corpus Fund, and a deduction for the whole amount the Central Government contributes. It applies to an individual enrolled in the Agnipath Scheme who subscribes to the Fund on or after 1 November 2022. The payout from the Fund is excluded from total income under Schedule II (Sl. No. 7).

One catch matters for most people. If you are taxed under the default rates of section 202(1), only the Government's contribution (section 125(2)) stays deductible. Your own contribution (section 125(1)) does not. This guide explains both cases with worked figures. The law is as amended by the Finance Act, 2026, and the examples use tax year 2026-27. It is information, not tax advice.

What is the Agniveer Corpus Fund?

Section 125(3)(b) defines it as a fund in which the consolidated contributions of all Agniveers, the matching contributions of the Central Government, and the interest on both are held. The Agnipath Scheme itself is the Armed Forces enrolment scheme introduced by the Ministry of Defence letter dated 29 December 2022 (section 125(3)(a)).

What deduction does section 125 allow?

Provision	Whose money	Deduction	Condition
Section 125(1)	Agniveer's own contribution	Whole amount paid or deposited in the tax year	Individual enrolled in Agnipath Scheme; subscribes on or after 1 November 2022
Section 125(2)	Central Government's contribution to the Agniveer's account	Whole amount contributed	Contribution made to the account in the Fund

There is no rupee cap in the section. The deduction is the amount itself.

Is the Government's contribution taxable salary?

Yes, it is first counted as income. Section 16(l) says "salary" includes the contribution made by the Central Government in a tax year to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme. Section 125(2) then gives a matching deduction, so the contribution is added and deducted in the same computation.

Which part survives under the default tax rates of section 202(1)?

Section 202(1) sets default rates that apply unless you exercise the option in section 202(4). When total income is computed on those rates, section 202(2)(a)(xii) takes away the deductions in Chapter VIII, with exceptions. The exceptions are section 124(1), section 124(2), section 125(2) and section 146.

How and when does an Agniveer exercise the section 202(4) option?

Section 202(4) says the option is exercised in the prescribed manner for a tax year. For an Agniveer with no business or profession income, it is exercised along with the return of income furnished under section 263(1) for that tax year (section 202(4)(b)). If the person has business or profession income, the option must be exercised on or before the section 263(1) due date, it then applies to later years, and it can be withdrawn only once (section 202(4)(a)). Check the prescribed manner for your case before relying on it.

How much tax difference does this make? Two worked examples

Assumptions (illustrative, not scheme terms): tax year 2026-27. The figures below are round numbers chosen to show the arithmetic. Actual contribution rates come from the scheme terms, which are not in the Act. Other deductions and exemptions are ignored so the effect of section 125 is visible.

Example 1: full year of service. Ravi, an Agniveer, has taxable pay of Rs 30,000 a month. He contributes Rs 5,000 a month to the Fund and the Government adds Rs 5,000 a month.

Step	Taxed under section 202(1)	Option exercised
Pay for the year (30,000 x 12)	Rs 3,60,000	Rs 3,60,000
Add Government contribution, section 16(l) (5,000 x 12)	Rs 60,000	Rs 60,000
Salary income	Rs 4,20,000	Rs 4,20,000
Less section 125(2), Government share	Rs 60,000	Rs 60,000
Less section 125(1), own share (5,000 x 12)	Nil (removed by 202(2)(a)(xii))	Rs 60,000
Income after section 125	Rs 3,60,000	Rs 3,00,000

Example 2: part-year contribution. Karan joins mid-year and subscribes for 8 months of tax year 2026-27. His pay for those months is Rs 28,000 a month, his contribution is Rs 4,000 a month, and the Government adds Rs 4,000 a month.

1. Pay for 8 months: 28,000 x 8 = Rs 2,24,000.
2. Government contribution (section 16(l)): 4,000 x 8 = Rs 32,000. Salary income = 2,24,000 + 32,000 = Rs 2,56,000.
3. Section 125(2) deduction: Rs 32,000. Section 125(1) deduction: 4,000 x 8 = Rs 32,000.
4. Under section 202(1): 2,56,000 − 32,000 = Rs 2,24,000.
5. With the option exercised: 2,56,000 − 32,000 − 32,000 = Rs 1,92,000.

Is the money taxed when an Agniveer takes it out?

Schedule II, Sl. No. 7, covers any payment from the Agniveer Corpus Fund to a person enrolled under the Agnipath Scheme, or to his nominee. The amount excluded from total income is "Nil", meaning the whole payment is excluded under section 11(1). Note 2 of the Schedule says the terms "Agniveer Corpus Fund" and "Agnipath Scheme" have the meanings given in section 125.

Real-life examples

Meena, a nominee. Meena's brother, an Agniveer, passes away in service, and she is the nominee on the Fund account. The payment she receives from the Fund is covered by Schedule II, Sl. No. 7, because the entry names the nominee as well as the enrolled person. She does not add it to her own income.

Suresh, a family member who gets a form wrong. Suresh helps his son, a serving Agniveer, with the return. He claims the son's own contribution under section 125(1) even though the son is taxed on the default rates of section 202(1). The deduction should have been limited to the Government's share under section 125(2), so the return needs a revised computation.

Common mistakes

• Forgetting that the Government's contribution is added to salary under section 16(l) before it is deducted under section 125(2).
• Claiming the own-contribution deduction under section 125(1) while taxed under section 202(1).
• Claiming contributions for subscriptions made before 1 November 2022. Section 125(1) covers subscriptions on or after that date.
• Treating the Fund payout as income because interest is included. The Schedule II entry excludes the payment from the Fund, and the Fund holds the interest (section 125(3)(b)).
• Assuming the deduction is capped. Section 125 has no rupee limit.

Quick reference

Question	Answer	Where
Own contribution deduction	Whole amount; not under 202(1)	Section 125(1); 202(2)(a)(xii)
Government contribution deduction	Whole amount; survives under 202(1)	Section 125(2); 202(2)(a)(xii)
Is Government contribution salary?	Yes	Section 16(l)
Start date	Subscriptions on or after 1 November 2022	Section 125(1)
Payout from Fund	Excluded from total income, to the person or nominee	Schedule II, Sl. No. 7

Where this is in the Act

• Section 125: deduction for contribution to the Agnipath Scheme
• Section 16(l): Government contribution counted as salary
• Section 202(1), (2)(a)(xii) and (4): default rates, deductions removed, and the option
• Section 11(1) and Schedule II, Sl. No. 7 with Note 2: payout excluded from total income

Section 125 sits beside the pension-scheme deduction in section 124. For that, read our guide to the NPS and pension contribution deduction. For where section 125 fits among all deductions, see the deductions overview.

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