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.
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.
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:
Also read: Section 80GG of Income Tax
Individuals must note the following points regarding this section:
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.
Also read: Section 80CCD of Income Tax
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.
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.
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.
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.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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