Defense persons know very well that every month AFPP fund is deposited from their salary. In this post, we will talk about AFPP Fund in detail, what is AFPP Fund and how it works. What is the minimum or maximum contribution amount that can be deposited in a month, what are the rules for withdrawing AFPP fund and what is the tax benefit and interest rate available in it.

What is AFPP Fund?

AFPP Fund is a government savings scheme in which an amount is taken as a contribution from the salary of the defense person on which the Government of India pays a fixed interest rate.

This scheme is also there in the civil jobs of the Central Government which is called GPF or General Provident Fund. This applies to all central government employees. It has been given different names in different services but the rules and regulations are the same for it.

AFPP Fund Contribution Limit

Defense personnel can increase or decrease their contribution to the AFPP fund as per their requirement. Defense personnel have to deposit at least 6% of their Basic Pay, Military Service Pay and Group Pay in the AFPP Fund. For example, if the basic pay, military service pay and group pay are Rs 30,000 in total, then he has to deposit at least Rs 1,800 in the AFPP fund. If we talk about the maximum AFPP fund contribution, then 100% of the basic pay, military service pay and group pay can be contributed to the AFPP fund.

According to the Office Memorandum No. 3/6/2021-P&PW(F) of the Department of Pension and Pensioners Welfare, which was issued on 11 October 2022, a maximum of Rs 5 lakh can be contributed to the AFPP fund in a year. Earlier there was no annual limit on AFPP funds.

AFPP Fund Interest Rate

A fixed interest rate is available on AFPP funds, which is revised every 3 months by the central government. If we talk about now, in November 2022, 7.10% interest is available on AFPP Fund. If we talk about the last few years, the interest rate of AFPP Fund has declined. But the interest rates of AFPP funds are still higher than Fixed Deposits. Investments in AFPP Fund are very safe and have negligible risk.

AFPP Fund Tax Benefit

Contribution up to Rs 150000 made to the AFPP Fund is tax exempted under section 80C of the IT Act. That is, no tax is levied on AFPP funds up to Rs.150,000.

Apart from this, when any defense person withdraws AFPP fund at the time of going to pension or in between, that amount is also tax free. The full amount of AFPP final withdrawal is exempt from tax. This is an important benefit of AFPP Fund.

AFPP Fund Withdrawal Rule

A maximum of 75% of the total amount of AFPP fund can be withdrawn in case of emergency or for house construction or repair. An application for withdrawal has to be submitted through the office and the amount is credited to the defense person's account within 15 - 20 days. AFPP funds can be withdrawn every 6 months if required.

AFPP Funds are a good option for investment in which the investments are secure and give a fixed return which is higher than other secure investments like FD etc. Defense personnel must invest their salary in AFPP funds as per their profile. But at the same time make sure to invest in instruments where the returns are higher than the AFPP fund. Because the inflation rate is also around 6-7% if you invest your entire savings in AFPP Fund then the growth of your investment will be very less due to inflation. You must consult a financial advisor before investing.

If you like the information, then do share it with other defense persons.