Section 80CCC: Tax Deductions for Pension Fund & Annuity Contributions

Last Updated : March 10, 2023, 6:20 p.m.

Tax saving on contributions to pension funds refers to the benefits provided by the government to encourage individuals to save for their retirement years through various pension schemes. These benefits take the form of tax deductions, exemptions, and rebates on the contributions made to the pension fund. The exact amount of tax savings depends on the specific pension scheme and tax laws and regulations.

Section 80CCC of the Income Tax act

Section 80CCC is a part of the Income Tax Act, 1961, India. This section provides a tax deduction for contributions made to specified pension funds by individuals. The maximum deduction available under this section is Rs. 1,50,000 per financial year. This contribution made to an annuity plan offered by the Life Insurance Corporation of India or any other insurer or to a pension scheme offered by UTI is eligible for tax deductions under Section 80CCC. The pension amount obtained, including bonus or interest, is taxable in the year of receipt. It’s worth noting that the overall tax deduction limit that can be claimed under Section 80CCC, along with Section 80C and Section 80CCD, is Rs. 1,50,000. You may be confused with 80C and 80CCD; let’s discuss them.

Difference between 80C and 80CCD

Section 80c allows for a tax deduction for a variety of investments and expenses made by taxpayers. This section covers a wide range of expenses, including tuition fees, contributions to provident funds, life insurance premiums, and more.

On the other hand, Section 80CCD pertains specifically to deductions for contributions made by taxpayers to the National Pension System (NPS) account. The max limit deduction under this section is 10% of the taxable income or Rs.1.5L, whichever is lower.

In short, while Section 80C covers a broad range of expenses, Section 80CCD provides tax benefits only for contributions made to the NPS account.

Section 10 (23AAB)

This section provides tax exemptions and deductions for income earned by a recognized insurer’s pension fund. Section 10 is linked with Section 80CCC, which allows for a tax deduction for contributions made to such a pension fund. To qualify for the tax exemptions and deductions under this section, the fund must have been set up prior to August 1996 as a pension scheme, and the contributions made by the taxpayer must be for the purpose of earning income in the future.

Terms and Conditions of Section 80CCC

Section 800CCC offers tax deductions for individuals who make a payment toward purchasing an annuity plan from a public insurance company such as LIC or contribute to pension funds. To qualify for this section, the individual must have made payments for receiving a pension from a fund referred to under Section 10(23AAB). Apart from all that, the following points summarize the terms and conditions.

• Pension funds received from the policy are taxable as income in the previous year.
• The surrender value of the annuity plan and any bonuses or interests are also taxable.
• Investments made before April 2006 are not eligible for rebates under Section 88.
• Deposits made before April 2006 are not eligible for deduction under Section 80c.
• The maximum limit for tax deduction is Rs. 1.5 lakh per fiscal year.

Eligibility for Tax Deductions under Section 80CCC

This section provides tax deductions for individual taxpayers who pay a sum to purchase or continue a pension-providing annuity plan from an insurance company. The advantage is not for Hindu Undivided Family companies, partnerships, sole proprietorships, companies, and associations.

Additionally, it is not limited to resident Indians. The non-resident Indians who are contributing towards eligible pension plans can also apply for this deduction if they are subject to taxes in India.

Claiming Deductions

If an individual wants to claim deductions, they need to follow these steps:

• Determine eligibility by checking that you meet the criteria for availing deductions under Section 80CCC
• Keep all relevant documents and records of contributions made towards the pension plan.
• Include the amount of contribution in the “Income from Other sources” section of the ITR form.
• Claim a deduction of up to 10% of taxable or the amount of premium paid, whichever is lower.
• Submit required supporting documents, such as receipts and bank statements, along with the ITR form.

It is always advisable to consult a tax professional or refer to the latest tax laws and regulations for a clear understanding of the provisions of Sections 80CCC and the correct process for claiming a deduction.

Limit of Section 80CCC

The maximum 80CCC deduction is not a standalone limit. It is clubbed under the overall limit of Rs. 1.5 L for deduction under this section.

For example, if a taxpayer contributes Rs. 50,000 toward a pension plan and Rs. 75,000 towards a PPF account in a financial year, the total investment would be Rs. 1.25L. But the total tax deduction the taxpayer can obtain for these investments is capped at Rs. 1.5L as a total of benefits under Section 80C, 80CCC, and 80CCD. Any additional contributions above this limit will not be eligible for a tax benefit.

Taxation on Maturity Proceeds

According to Section 80CCC, the maturity proceeds and/or surrender value received from a pension-providing annuity plan are considered taxable income. Once the plan reaches maturity, an aggregate amount is paid out to the policyholder, which may be followed by periodic regular payments for a specific period or for life. These proceeds are subject to tax as per the individual’s applicable income tax slab. In case of premature surrender of the policy, the surrender value, which is generally a percentage of the premium paid till that point, is also considered taxable income as per the provisions of the IT Act.

Conclusion

Section 80CCC provides tax benefits for individual taxpayers who contribute towards a pension- providing an annuity plan from a recognized insurer, including the LIC. The maximum deduction is capped at Rs 1.5 L under the overall limit for deduction under Section 80C and can be claimed by including the contribution in the ITR form with supporting documents. It is recommended to consult a tax professional for a clear understanding of the provisions and correct process for claiming the deduction.