Atal Pension Yojana: From contribution to penalty, 10 facts you must know before investing

New Delhi: For people looking to invest for a fixed pension during their retirement, the guaranteed pension scheme of the government — Atal Pension Yojana (APY) — is an attractive option. The APY pension scheme is administered by the Pension Fund Regulatory and Development Authority (PFRDA) and is available to people aged 18 to 40 years. The other criteria to invest in APY is that one needs to have a savings account in a bank or a post office.


Note that APY scheme is a deferred pension scheme which means that one needs to keep contributing regularly till age 60 and, thereafter, a fixed amount of monthly pension will begin. This social security scheme was launched to provide them with a defined pension between Rs 1,000 to Rs 5,000, depending on the contribution and its period.

Here are 10 things you need to know before investing: 

1. Contribution: In the initial years, the only option to pay APY contributions was on a monthly basis. However, now, the individual subscribers also have an option to make the contribution on a quarterly or half-yearly basis in addition to a monthly basis.

2. Guaranteed pension: The pension amount is a fixed amount that the subscriber is assured to receive from age of 60. However, the actual returns generated by the government may vary. As per the rules, if the accumulated corpus based on contributions earns a lower than estimated return and is inadequate to provide the minimum guaranteed pension, the central government would fund such inadequacy. Alternatively, if the actual returns during the accumulation phase are higher than the assumed returns for minimum guaranteed pension, the excess will be passed on to the subscriber.

3. Tax benefit in APY: Investment in APY qualifies for deduction under section 80CCD (1) of the Income-tax Act, 1961. The maximum amount that can be deducted from taxable income under this scheme is Rs 2 lakh in the financial year. Also, the combined deduction under Section 80C and Section 80CCD cannot exceed Rs 2 lakh.

4. APY Contributions and corpus: In order to get a fixed monthly pension between Rs 1,000 and Rs 5,000 a month, the subscriber has to contribute between Rs 42 and Rs 210 per month if they are joining at the age of 18 years. On the other hand, if the subscriber joins at the age of 40 years, then the contribution ranges between Rs 291 and Rs 1,454 per month, for the same fixed pension levels. You can decide your Atal Pension Yojana contribution depending upon your desires.

As per the APY chart, here are the contributions and corpus:

For a minimum guaranteed pension of Rs 3,000 per month, the monthly contribution will be range between Rs 126 and Rs 792 for entry age of 18 to 39. The return of corpus to the nominees will be Rs 5.1 lakh, irrespective of the entry age.

For a minimum guaranteed pension of Rs 4,000 per month, the monthly contribution will be range between Rs 168 and Rs 1054 for entry age of 18 to 39. The return of corpus to the nominees will be Rs 6.8 lakh, irrespective of the entry age.

For a minimum guaranteed pension of Rs, 5000 per month, the monthly contribution will be range between Rs 210 and Rs 1318 for entry age of 18 to 39. The return of corpus to the nominees will be Rs 8.5 lakh, irrespective of the entry age.

Note that, the NPS Trust website has the APY calculator to help one calculate the tentative pension and lump Sum amount to expect on maturity or 60 years of age based on regular contributions.

5. Discontinuation: In case one stops making a contribution towards APY, the discontinuation of payment will not deactivate the APY account immediately. According to the rules, the account will not be deactivated and closed till the account balance with self-contributions minus the Government co-contributions, if there is any, becomes zero due to deduction of account maintenance charges and fees.

6. Penalty: If one fails to make their payment on time towards APY, there is a penalty. The penalty on delayed payment is Rs 1 per month for the contribution of Rs 100, or part thereof, for each delayed monthly payment instead of different slabs in the past.

7. APY account Renewal: In case of default in payment of contribution, one needs to regularise their APY account by paying the overdue amount along with the penalty amount. Once the account is regularised, the pension becomes guaranteed under the scheme.

8. Premature exit: Earlier, any premature exit from the APY scheme before the age of 60 was not allowed except in the event of the death of the subscriber or terminal disease. Subsequently, the rules were changed and now, one can exit APY voluntarily, subject to the following conditions:

a. The contributions made by the subscriber to APY, along with the net actual interest earned on the contributions will be made after deducting the account maintenance charges.

b. If there is any co-contribution made by the government, it will not be returned along with interest earned on the contributions.

9. Government’s co-contribution: According to PFRDA website, “The Central Government would also co-contribute 50 per cent of the total contribution or Rs 1,000 per annum, whichever is lower, to each eligible subscriber account, for a period of 5 years, i.e., from Financial Year 2015-16 to 2019-20, who join the APY between the period 1st June, 2015 and 31st December, 2015 and who are not members of any statutory social security scheme and who are not income taxpayers.

10. Premature death: In case of premature death of APY subscriber i.e. death before 60 years of age, the spouse of the subscriber has the option to continue contributing to APY account of the subscriber, for the remaining vesting period, till the original subscriber would have attained the age 60 years. In case of death of both subscriber and spouse, the entire pension corpus would be returned to the nominee.