Section 80CCC Of Income Tax: Importance, Eligibility, And Deductions
Section 80CCC of Income Tax Act permits individuals to claim tax deductions if they have paid any amount towards a pension fund with a life insurance provider in India. Individuals can avail 80CCC deductions of up to Rs. 1.50,000 in a year.
To know more about this section, keep reading.
A Closer Look at Section 80CCC of the Income Tax Act
Individuals having any annuity plan with a life insurer can obtain tax deductions under this section.
So, in simple terms, if you purchase any pension plan from a life insurance provider that promises to provide you with regular annuities, you can obtain an 80CCC deduction on the contribution once the plan matures.
You can also claim deductions on the amount that you had spent for plan renewal. However, the received pension amount and the bonus or interest in the amount is subject to tax during the current year.
Eligibility for Tax Deduction under Section 80CCC of the Income Tax Act
Not every taxpayer in India can obtain a deduction under Section 80CCC of the Income Tax Act. The following parameters decide whether a taxpayer can obtain deductions under this section:
- The taxpayer has to be an individual.
- Hindu Undivided Families (HUFs), companies, associations, partnerships or sole proprietorships cannot claim 80CCC deduction.
- Individuals can be resident Indian or Non-resident Indians (NRIs).
Also read: Section 80GG of Income Tax
Important Points to Remember Regarding Section 80CCC of the Income Tax Act
Individuals must note the following points regarding this section:
- One can opt for a deduction for the overall amount deposited or paid for a pension plan. However, this amount must not include any bonus or interest accumulated into the account of the assessee.
- If a taxpayer gets any pension from the plan for which he/she has opted for a deduction, then the pension amount will be taxable as part of the total income in the current financial year.
- If a taxpayer surrenders the pension account in whole or partly, then the amount that he/she receives will be treated as an income and will be taxable during the current financial year. Here’s an example:
Suppose Mr Anil claims a deduction of Rs. 4,50,000 under Section 80CCC of the Income Tax Act for the previous 4 years. During the 5th financial year, he decides to surrender his annuity plan. Upon surrendering, he receives Rs. 5,50,000, including any bonus and interest. In this case, the entire amount of Rs. 5,50,000 will be taxable as income of Mr Anil.
- If an individual claims a deposit amount under a pension plan under Section 80CCC, then he/she is not allowed to claim the exact amount on the same pension plan during the same year under Section 80C of the Act.
- An individual must pay the deposit amount from his/her taxable income.
- Interest or bonus received from an annuity plan will be directly taxable at the hands of a taxpayer. This amount is not allowed for a tax deduction.
- Individuals can only claim deductions for the amount paid for the preceding year only. If contributions towards an annuity plan are made at once, the individual will be eligible to claim a deduction for the year during which he/she made the payment.
- The pension plan that one buys from an insurance firm must be approved by IRDAI (Insurance Regulatory and Development Authority of India).
Also read: Section 80CCD of Income Tax
Deduction Limit under Section 80CCC of Income Tax Act
Individuals must note that their standalone 80CCC deduction limit under this section is not Rs. 1.5 lakh. Instead, this deduction limit is in association with Section 80C and Section 80CCD(1). Meaning, one total spending in all these three sections must not exceed Rs. 1.5 lakh.
For example
Suppose Mr Sharma invested Rs. 1.5 lakh in an ELSS mutual fund and Rs. 1 lakh in a pension fund. His total investment towards both these schemes is Rs. 2.5 lakh. Here, the deduction on income tax will be applicable only up to the amount of Rs. 1.5 lakh. This is because ELSS is eligible for tax deduction under Section 80C, and pension funds qualify under Section 80CCC.
Final Word
Knowing about Section 80CCC of the Income Tax Act is helpful for taxpayers who have contributed a sum towards a pension annuity scheme. This section will help one reduce their taxable income and tax outgo.
Frequently Asked Questions
Ans: No, the proceeds from a pension plan are not tax-free. The amount you receive from a pension plan, including bonus or interest, is taxed as per the current rates during a year. You can also claim deductions for your contributions towards the plan under this section.
Ans: No, you cannot claim deductions upon any contribution made towards a life insurance plan under this section. However, premiums paid for life insurance plans are eligible for tax benefits under Section 80C of the Income Tax Act.
Ans: In a pension plan, you generally contribute regular amounts towards your plan. This amount gets collected by the insurance agency over a span of certain years. After the plan matures, you receive an accumulated corpus. The insurer pays the annuity by considering this corpus only. This annuity amount that you receive is taxable as per the IT laws. The tax rate will be levied as per the tax slab that is applicable to you.
Ans: No, NPS is not covered under Section 80CCC of the Income Tax Act. This section only allows deductions for contributions made towards a pension annuity plan with an IRDAI-recognised insurance provider. However, investments in NPS are eligible for deduction under Section 80CCD.
Ans: A pension plan covered under Section 80CCC of the Income Tax Act is an annuity plan that promises to pay retirement or pension benefits to the nominee or the insurance holder. Regarding this, you must make sure to purchase a pension plan from an approved insurer.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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