Section 80CCC of Income Tax Act

Section 80CCC is a section included in the Income Tax Act of 1961 that deals with offering deductions to taxpayers who invest in specific pension plans offered by life insurance policies in India. Pension plans have become one of the most popular investment instruments as they allow individuals to invest systematically and save for their retirement.

Since most individuals do not have a primary source of income after retirement, their lifetime investments in pension plans help them receive a specific amount after retirement. The Indian government encourages individuals to contribute to pension plans and receive an adequate amount after retirement to cover future expenses. Hence, the Indian government provides tax deductions for the contribution amount under section 80CCC of the Income Tax Act made towards pension plans offered by life insurance policies.

If you are an earning individual who wants to plan for retirement or take advantage of tax benefits to lower your taxable income, section 80CCC can immensely help. This blog will help you understand everything about section 80CCC and how it can help you with an effective financial plan while resulting in tax benefits.

What is Section 80CCC of the Income Tax Act?

Section 80CCC of the Income Tax Act provides tax deductions to individuals on contributions made to specific pension plans offered by life insurance. It is an extension of section 80C and a sub-section allowing Rs. 1.5 lakh as the maximum deduction in a financial year.

Apart from the pension plans offered by life insurance companies, section 80CCC also provides deductions up to Rs. 1.5 lakh for annuity plans offered by any recognised life insurance companies. Since Section 80CCC only covers insurance companies, it does not offer any tax deductions for retirement programs or pension funds offered by mutual fund companies.

Characteristics of Section 80CCC from the Income Tax Act of India

Here are the important characteristics of Section 80CCC of the Income Tax Act, which allows individuals to get a tax deduction of up to Rs. 1.5 lakh in a financial year:

• Taxpayers who have contributed a specific amount from their taxable income for purchasing or renewing an annuity or pension plan from registered life insurance companies.

• The tax deduction is applicable only when the pension plan follows the rules specified under section 10(23AAB) and provides the pension from accrued funds to the taxpayer.

• If the taxpayer earns bonuses or interest as a result of the pension plan, the amount is not tax deductible under section 80CCC.

• The tax deduction must be claimed for the same financial year in which the taxpayer contributed towards the pension plan. If the premium paid is a one-time premium, the taxpayer can claim the tax deduction for the year the lump sum premium payment was made. Hence, taxpayers cannot get tax benefits in the subsequent years during which the plan is ongoing.

• If the premium is paid every year, taxpayers can claim tax deductions for each year under section 80CCC.

• The surrender value of the pension plan is deemed income and is taxed according to the taxpayer's applicable income tax slab.

• Rebates on investments in pension plans made before April 1, 2006, are not allowed under section 88.

Who is eligible for Section 80CCC?

Here are the individuals and entities eligible for Section 80CCC tax deduction:

• Any resident, individual, and non-resident contributing towards an annuity or pension plan offered by life insurance companies. You can claim the tax deduction only if the contribution is made from your taxable income. Claiming this deduction is not required if your total taxable income is below the basic exemption limit.

• Hindu Undivided Family (HUFs), sole proprietorships, companies, partnerships, and associations are not eligible to claim a tax deduction under Section 80CCC of the Income Tax Act.

• The amount claimed as tax deduction under Section 80CCC must not be higher than your net taxable income.

Claim limit of Section 80CCC

Below is the information about the claim limit of Section 80CCC:

• You can claim a maximum 80CCC deduction of Rs. 1.5 lakh on the contributions made towards annuity and pension plans offered by life insurance companies during a financial year.

• The 80CCC deduction of Rs. 1.5 lakh is in combination with the claim limits of Sections 80C and 80CCD. Hence, you can claim a maximum tax deduction of Rs. 1.5 lakh in all three Sections combined, i.e., 80C+80CCC+80CCD = Rs. 1.5 lakh.

What are the tax benefits under Section 80CCC of the ITA?

Section 80C is one of the most important Sections for taxpayers who want to get a tax deduction and lower their taxable income based on their investments in specific investment instruments. However, Section 80C consists of an extensive list of investment instruments eligible for a tax deduction, making it difficult for taxpayers to analyse all of them and invest accordingly. Hence, Section 80C was divided into subsections to make it easier for taxpayers to identify investment instruments eligible for tax deductions.

Now, Section 80CCC allows you to claim a tax deduction up to Rs. 1.5 lakh on your investments or contributions to annuity and pension plans purchased from a life insurance company. The maximum tax deduction is in combination with the limits of Sections 80C and 80CCD. However, one of the most important conditions for claiming this tax deduction is that the contributions made towards the pension plans must be made using the taxable income.

What is the significance of Section 10(23AAB) concerning Section 80CCC?

Section 80CCC provides a tax deduction of a maximum amount of Rs. 1.5 lakh for contributions made towards annuity and pension plans during a financial year. However, there is a need to define the specified annuity and pension plans offered by life insurance companies that are eligible for the tax deduction under Section 80CCC. Here, Section 10(23AAB) supports Section 80CCC by defining the specific annuity and pension plans.

Only the annuity and pension plans specified under Section 10(23AAB) are eligible for a tax deduction of Rs. 1.5 lakh under Section 80CCC. The current provisions allow the tax deduction for annuity plans offered by the Life Insurance Corporation of India (LIC) and pension plans offered by other insurance companies licensed by the Insurance Regulatory and Development Authority of India (IRDAI). Hence, such annuity and pension plans offered by a mutual fund company are not eligible for 80CCC deduction.

Who can claim the 80CCC deduction?

Individuals who have contributed towards an annuity plan purchased from the Life Insurance Corporation of India (LIC) and pension plans offered by other insurance companies registered by the Insurance Regulatory and Development Authority of India (IRDAI) are eligible to claim a deduction under Section 80CCC. Since the tax deductions are for individuals, residents and non-residents are both eligible, given they contribute the amount towards annuity and pension plans from their taxable income.

The Rs. 1.5 lakh tax deduction is in conjunction with the other two Sections, namely Section 80C and 80CCD. Once the overall combined tax deduction of Rs. 1.5 lakh is exhausted, you cannot claim any more tax deductions.

Furthermore, Hindu Undivided Family (HUFs), sole proprietorships, companies, partnerships, and associations cannot claim a tax deduction under Section 80CCC.

Important points related to Section 80CCC

Here are some important points related to Section 80CCC you must consider before claiming a tax deduction:

1. Deduction limit

Contributions made to eligible annuity and pension plans listed under Section 10(23AAB) are eligible for a tax deduction up to Rs. 1.5 lakh under Section 80CCC.

2. Combined cap

The maximum tax deduction limit of Rs. 1.5 lakh is part of a combined cap with Sections 80C and 80CCD.

3. Eligible plans

Only contributions made to annuity funds from LIC and pension funds from insurance companies approved by the IRDAI qualify for the tax deduction under Section 80CCC.

4. Taxability

The pension or annuity received from these funds is taxable in the year of receipt based on the taxpayer's applicable income tax slab.

5. Non-applicability of rebates

Taxpayers are barred from claiming any rebate under Section 88 for contributions covered under Section 80CCC.

6. Taxation on surrender value

If the taxpayer surrenders the annuity or the pension plan, the amount received with bonuses or interest is deemed taxable.

Conclusion

Investing in annuity and pension plans is a vital factor in the success of a financial plan that ensures you have adequate funds after retirement or after a specific age. Section 80CCC ensures that you get a tax deduction on the amount you contribute as a lump sum or every year towards an annuity or a pension plan offered by LIC or other registered insurance companies. The tax deduction is a maximum of Rs. 1.5 lakh and provided in conjunction with Sections 80C and 80CCD. Hence, if you are a resident or non-resident, you can lower your taxable income by Rs. 1.5 lakh if you contribute the amount towards an annuity or a pension plan. However, ensure that the amount you contribute is from your taxable income to claim the deduction.

If you are considering investing in mutual funds, look no further than the Bajaj Finserv platform. It is designed with unique investing tools, such as a mutual fund calculator that can help you compare mutual funds and invest in the most suitable mutual fund schemes.

Essential tools for all mutual fund investors

Lumpsum Calculator	Step Up SIP Calculator	Axis Bank SIP Calculator	Canara Robeco SIP Calculator
SBI SIP Calculator	HDFC SIP Calculator	Nippon India SIP Calculator	ABSL SIP Calculator