About Section 80CCC, Income Tax Act 1961

Read the below mentioned pointers to know more about Section 80CCC, Income Tax Act 1961 -

  • Section 80CCC was made effective from the 1st of April of 1997. It was done soon after the Section 80CCB came into effect. Between 80C, 80CCD, and 80CCC, Section 80CCC, Income Tax Act, 1961 allows taxpayers to claim deductions in tax for making contributions towards pension funds. According to Section 80CCC, a taxpayer can enjoy tax deduction of up to Rs. 1.5 Lakhs (maximum) every year on the expenses made towards purchasing a new plan or renewing an existing pension plan or a periodical allowance, with reference to Section10(23AAB).
  • The amount of pension money received along with any bonus or interest amount accrued on the allowance (annuity) are all taxable. Most importantly, the limit of deduction under 80CCC of Income Tax Act, 1961 is combined with the limits of Section 80 C and 80CCD. It means that the total limit of deduction that can be claimed by a taxpayer is Rs. 1, 50, 000 and not more than that.
  • Section 80CCC permits deduction of income tax that is to be claimed by an individual who has invested or deposited a certain amount of money for buying an annuity policy from a public insurance service provider like Life Insurance Corporation and others.
  • In order to apply for this tax benefit, the taxpayer must have paid to get purchased pension from any fund mentioned under Section 10 (23AAB). However, the profits from the plan are taxable, no matter if it’s interest or any bonus.
  • Tax deduction under ITA’s Section 80CCC is for both residents and non-resident individuals. It is applicable only if the taxpayers spend a certain amount of money towards any pension policy. Tax benefits under this section are for individuals. HUF or Hindu Undivided Families cannot claim for it.
  • As a taxpayer, you can claim for the tax deduction for the year in which you have made the payment. For example, you made a one-time payment. So, against this payment, you are entitled to a tax deduction for the year in which you have made the payment. You cannot claim tax deductions for the rest of the years or the entire tenure of the coverage. However, if you make your payments annually, you can claim tax deduction every year.

Section 80CCC, Income Tax Act 1961 – Terms and Conditions

Here are some of the terms and conditions associated with Section 80CCC. Let’s have a quick look at the pointers given below –

  • If you are a taxpayer, you can ask for tax deduction only if you have deposited a certain amount of money for purchasing or renewing annuity policy via LIC or any other insurance service provider.
  • The maximum amount of tax deduction that can be claimed by you is Rs. 1, 50, 000 during a financial year.
  • The plan towards which you have been making the payments has to pay out a pension from the funds accrued. It should be according to the terms and conditions of Section 10 (23AAB).
  • Being a taxpayer, you are not entitled to claim any tax exemptions on bonuses and interests accumulated from the plan. Simply put, the profits you get from the plan are taxable.
  • You should make the contribution (that is subjected to tax deduction claim) from the money that is chargeable to income tax.
  • The surrender value of the annuity policy regardless of whether it’s partial or whole will also be considered as income and will be taxed accordingly.
  • You can claim for tax deduction only on the sum you paid off for the previous year. If you have made contributions at a time for a given year, you can ask for tax deductions for that year only.

Tax deductions under Section 80CCC – Are you eligible?

You are eligible for the deduction under Section 80CCC if you qualify the following criteria. Please have a look –

  • If you are a taxpayer who has purchased an annuity plan from an approved insurance service provider, you can make the claim.
  • If you belong to a Hindu Undivided Family, you are not eligible for tax deductions under Section 80CCC.
  • Whether you are a resident or a non-resident, you can claim for tax exemptions under Section 80CCC.

Section 10 (23AAB) – What is it?

The provisions mentioned under Section 10 (23AAB) are integral to Section 80CCC of Income Tax Act, 1961. It is associated with the money earned from an account or fund by an approved insurance service provider like LIC. It is mandatory for the fund or policy to be started before August 1996 under the name of a pension scheme. The contributions made towards the policy must have been paid out with the sole intention of getting pension income in the years to come.


Important information regarding Section 80CCC

These are some of the important pointers about Section 80CCC that you should know as a taxpayer. Have a look –

  • The limits of tax deductions available under ITA Section 80CCC are combined with Section 80 C and 80CCD (1) to chalk out the total limit for deduction available.
  • The provisions mentioned under Section 80CC are applicable only to those insurance companies in India that provide pension or annuity plans. And, the insurance service provider can be a private or a public entity. That does not matter here.
  • The tax deductions are viable for the amount of premium or any amount paid for the previous year of assessment only.
  • The maximum amount that can be deducted under Section 80CCC is Rs. 1, 50, 000/annum.
  • There is a difference between Section 80C and 80CCC. Under the former, the sum to be paid towards contributions can come from any not taxable source of income. However, under Section 80CCC, it is mandatory to pay off towards the contributions from a taxable source of income.
  • Taxpayers who have made the payment towards taxes in excess and have invested in various plans like LIC, PPF, Mediclaim and so on are entitled to make a claim under Section 80CCC. They can get a refund of the excess money paid while filing their income tax returns.
  • Both residents, as well as non-residents of India, are entitled to make a claim under Section 80CCC. However, Hindu Undivided Families are not eligible for deductions under Section 80CCC.
  • No matter what, a taxpayer cannot claim any more deductions after crossing the limit of Rs. 1, 50, 000/- in reference to section 80C, 80CCC, and 80CCD (1).

Conclusion

With Section 80CCC, a taxpayer can save a considerable amount of money in regard to his or her taxation liability. In order to get this exemption of tax, a taxpayer is required to keep a record of whatever transaction he or she is making towards the annuity plan.


Frequently Asked Questions

Questions related to Section 80CCC of the Income Tax Act, 1961 are endless. Here we have curated a list of some of the most frequently asked questions about the same. Hopefully, these will help you curtail confusions to a great extent. Let’s have a quick look –

Q- What is the most important feature of Section 80CCC of the Income Tax Act, 1961?

According to Section 80CCC of the Income Tax Act, 1961, a taxpayer is entitled to claim tax exemptions for monetary contributions made towards certain insurance policies or pension funds.
Exemptions on tax are only applicable to payments that are made in the form of policy premiums for an annuity policy purchased from an approved insurance provider like LIC and others.
The maximum amount of tax deductions that can be availed under Section 80CCC of the Income Tax Act, 1961 is Rs. 1.5 Lakhs.


Q- What about the proceeds or profits gained from an annuity plan? Are these tax-free?

The proceeds or money gained from any insurance or annuity plan are not tax-free. The amount of money received from the policy, in the form of bonus or interest, both are taxable. Moreover, a taxpayer can claim tax exemptions under Section 80CCC of the Income Tax Act, 1961 only for the payments made for any annuity plan.


Q- Under Section 80CCC of the Income Tax Act, 1961, what is a pension fund?

It can be defined as an investment product that provides income after retirement. Under Section 80CCC of the Income Tax Act, 1961, a taxpayer is allowed to claim deductions in tax against the monetary contributions made towards any pension fund. For claiming this tax benefit, a taxpayer has to make monetary transactions for getting an annuity from a fund, as mentioned Under Section 10 (23AAB). The maximum amount of deductions that can be claimed by a taxpayer under Section 80CCC of the Income Tax Act, 1961, is Rs. 1.5 Lakhs.

Q- What if you are an NRI (Non-Resident Indian)? Are you still entitled to make this claim?

Yes, even if you are an NRI you are entitled to claim a tax deduction under Section 80CCC of the Income Tax Act, 1961 for making contributions towards an annuity plan or pension fund mentioned under the Section 10 (23AAB). However, if you belong to HUF (Hindu Undivided Family) category, you are not allowed to ask for tax deductions under Section 80CCC of the Income Tax Act, 1961.


Q- Can you make a claim under both Section 80C as well as 80CCC of the Income Tax Act, 1961?

The tax deducted under Section 80CCC of the Income Tax Act, 1961 is a part of the total tax deduction under Section 80C of the Income Tax Act, 1961. The limit of tax deduction under Section 80CCC of the Income Tax Act, 1961 is combined with the limit of tax deduction under Section 80C and Section 80CCD of the Income Tax Act, 1961. So, 80CCC, 80C, and 80CCD combinedly make the amount Rs. 1.5 Lakhs.


Q- What do you mean by Income Tax Act, Under Section 80CCC?

As per the Income Tax Department of India, an individual taxpayer is entitled to claim a deduction in taxes for monetary contributions towards annuity plans or pension funds purchased from any approved insurance service provided such as LIC and others. Also, the total amount of tax deduction under Section 80C, 80CCC, and 80CCD should not exceed the amount of Rs. 1.5 Lakhs.


Q- You are covered by an insurance plan that has nothing to do with pension plans. Can you claim any tax benefit under Section 80CCC?

Well, the answer is no. You are not allowed to make any tax deduction claim if you have pay towards an insurance plan that’s nowhere related to any pension scheme under section 80CCC. Contributions in the form of premiums towards life insurance plans (term insurance plans, endowment plans, ULIPs, etc) are eligible for tax exemptions under ITA, Section 80C. This deduction of taxes can be claimed for making a payment towards self-insurance, insuring dependent children and spouse and any other family member of HUF (Hindu Undivided Family).


Q- Am I eligible to claim for tax deductions?

According to Section 80CCC of the Income Tax Act, 1961, an individual taxpayer is eligible for claiming a tax deduction if he or she makes a payment towards any pension fund or annuity plan. Also, whether you are a resident or an NRI, you are eligible to make a claim under Section 80CCC of the Income Tax Act, 1961. However, if you are a member of a HUF, you are not allowed to ask for any tax benefit under the same.

So, these are some of the most frequently asked questions in regard to Section 80CCC of the Income Tax Act, 1961. Hopefully, these will help you with your tax-related queries.

CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.