The Income Tax Act, 1961 offers several deductions and exemptions that allow you to reduce your taxes. Chapter VI A of the act lists down the various deductions that help you enjoy tax benefits.
These deductions are available by putting money in different types of financial instruments. Such investments reduce your taxable income and help you to save money by decreasing the tax liability.
What is section 80CCC?
Section 80CCC of the Income Tax Act, 1961 provides tax deductions when you invest in certain types of pension funds, which include the following.
- Annuity plans offered by the Life Insurance Corporation of India (LIC)
- Other plans offered by various insurers as specified under section 10(23AAB) of the Income Tax Act, 1961
The deductions are available when you buy a new insurance plan or renew an existing policy.
Why is it important?
Generally, private sector employees do not get pensions after retiring and need to plan their finances for the post-retirement years from their income. One of the available options for financial planning is to invest in pension funds.
Generally, such plans have longer investment tenure and allow you to accumulate a sizeable corpus over the years.
In addition to ensuring financial independence after your retirement, the annual contribution to the pension plans is eligible for tax benefits under section 80CCC of the Income Tax Act, 1961. The tax saved can be invested further to build a huge retirement corpus.
Features of 80CCC
- You must invest in a pension plan from a fund as per the guidelines of section 10 (23AAB) of the Income Tax Act, 1961.
- The investment amount should be paid only from your taxable income and the deduction cannot exceed total taxable income.
- Any proceeds like pension, interest, or bonus earned from such investments are not tax-exempt. These are added to your income and taxed at the applicable slab rate.
- Any lump sum received at the time of surrender of the plan (in whole or part) is also taxable as per the applicable income tax slab.
Eligibility to claim deductions under section 80CCC
Not every taxpayer is eligible for 80CCC deductions. Here are the eligibility criteria.
- Only individual Indian as well as Non-Resident Indian (NRI) taxpayers can claim the deductions.
- Deductions are not available to Hindu Undivided Families (HUFs), partnership firms, companies, associations, and other non-individual taxpayers.
- You should be earning a taxable income that is adjustable against the deductions under this section; if your annual income is less than the minimum exemption limit, there is no need for you to claim these deductions.
- The tax benefits are available only if you invest in specified pension funds during the financial year.
- The investment should be made from your taxable income and not from any other source of income.
Terms and conditions of section 80CCC
To ensure you claim the deductions under this section, you must note the terms and conditions mentioned below:
- You should not surrender the plan either in whole or part, if you do so, the surrender value is added to your income and taxed at the applicable rates.
- The investment must be in pension plans that pay annuity on maturity.
- You should put money in the specified pension funds during the financial year in which you are claiming the deductions.
- The pension plan should be brought from an Insurance Regulatory and Development Authority of India (IRDAI)-approved insurance company.
- Rebates on any investments in annuity plans before April 1, 2006, are not eligible for benefits under section 88 of the Income Tax Act, 1961.
- Deductions are not allowed for any amount deposited before April 1, 2006.
- If you make an investment in an eligible annuity plan as a single contribution, deductions under this section are available only for that particular financial year.
How can you claim deductions under section 80CCC?
You may claim the deductions as per 80CCC limits while filing your income tax returns (ITRs). To avail of the benefits, you have to report the total amount invested in the ITR; however, the maximum deduction is capped at INR 1.50 lakhs per annum.
You must remember that the benefits are available only on the amount you invest in a particular financial year.
Any accrued income like bonus or interest is not tax-exempt and will be added to your income and taxed at the applicable slab rate.
Difference between sections 80C and 80CCC
The primary difference between 80C and 80CCC is that under the former section, you can invest in eligible financial instruments from any income and claim the benefits even if the investment source is not taxable.
On the other hand, to get the benefits of the latter section, you need to invest in eligible pension funds only from your taxable income.
Section 80C provides tax benefits on contributions made in life insurance premium, Public Provident Fund (PPF), National Savings Certificate (NSC), Employee Provident Fund (EPF), tax-saving fixed deposits (FDs), Senior Citizens Savings Scheme (SCSS), Equity-Linked Savings Scheme (ELSS), Sukanya Samriddhi Yojana (SSY), Unit-Linked Insurance Plans (ULIPs), infrastructure bonds, principal repayment of home loans, and much more.
In comparison, section 80CCC benefits are limited to investments in eligible annuity plans from IRDAI-approved insurers. Any interest, bonus, or pension received from such policies is taxable. Moreover, the amount received on surrender is also not exempt from taxes.
Understanding section 10 (23AAB)
Section 10 (23AAB) of the Income Tax Act, 1961 is linked to the benefits available under 80CCC income tax limits.
Clause 23AAB includes the income of a fund set up by the LIC or other insurance companies on or after August 1, 1996. You should have made contributions to the policy or fund of these entities with the primary objective of earning pensions in the future.
The accumulated funds when paid to you as a policyholder are added to your income and taxed at your income tax slab rate. Moreover, these are not taxable for the insurance company.
The Income Tax Act, 1961 offers various sections to provide tax deductions. Now that you know the eligibility criteria and terms and conditions of section 80CCC, you may invest in eligible annuity plans offered by IRDAI-approved insurers and enjoy the tax benefits.
Frequently Asked Questions (FAQs)
What is a pension fund under section 80CCC of the Income Tax Act, 1961?
A pension fund is an investment plan that provides income during your post-retirement years. Under this section, you may claim tax deductions on the contributions made in such funds.
If you invest in an insurance plan that is not a pension plan, can you still claim section 80CCC deductions?
No, you cannot claim deductions under this section if you invest in an insurance plan that is not a pension plan. However, you can claim the benefits under section 80C of the Income Tax Act, 1961.
Premiums paid for self, spouse, dependent children, and any member of the HUF for life insurance, ULIPs, term plans, and endowment policies are eligible for section 80C tax benefits.
Who is eligible to claim section 80CCC tax benefits?
Benefits under this section of the Income Tax Act, 1961 are available only to individual taxpayers making contributions to any annuity plan offered by IRDAI-approved insurance companies.
However, these tax deductions are not available for HUFs and other non-individual taxpayers.
What are the conditions related to claiming section 80CCC tax deductions?
While claiming benefits, you need to remember the following conditions.
- Maximum deduction during the financial year is capped at INR 1.50 lakhs.
- Deductions are available only on contributions made during the preceding year. If you pay for two or more years or invest in a one-time pension plan, the benefit is available only in that particular financial year and not for the subsequent years.
- You are eligible for tax benefits only if you contribute towards buying a new plan or renewing an existing annuity plan from the LIC of India or other IRDAI-approved insurance companies.
- If you exit the policy either in part or in whole, the surrender value is added to your income and taxed at the prevalent income tax slab rate.
- You cannot claim tax benefits on any accrued income like interest or bonus.
- The contribution to the eligible pension fund must be from your taxable income.
Can NRIs claim section 80CCC benefits?
Yes, the tax benefits under this section are available to NRIs.
Can you claim tax benefits under sections 80C and 80CCC?
Benefits under section 80CCC are a part of the overall section 80C deductions. The maximum deduction under both sections is limited to INR 1.50 lakhs per annum.
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