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What is Section 80CCC?

Section 80CCC of the Income Tax Act, 1961, allows individuals to claim tax deductions for contributions made to certain pension funds. This section provides tax deduction up to a maximum of Rs. 1,50,000 during a year on costs incurred in buying a new policy or continuing an existing plan that pays pension or a periodical annuity (as referred to in Section 10(23AAB)). However, the pension amount received, including interest or bonus accrued on the annuity, is taxable during the year of receipt. An essential point to be noted is that the deduction limit under Section 80CCC is clubbed with the limit of section 80C and section 80CCD - which means the overall tax deduction limit that can be claimed is Rs. 1,50,000.

Deduction for Premium Paid for Annuity Plan of LIC or Other Insurers

Section 80CCC of the Income Tax Act allows income tax deduction to be claimed by taxpayers who make payments or deposits towards purchase of any annuity plan of public insurance company such as LIC or other insurance companies. To claim this tax benefit, the individual must have made payments to receive pension from a fund, which is referred to under Section 10 (23AAB). However, the proceeds from the policy - be it bonus or interest accrued - stand to be taxed during the year of receipt.

Claiming tax deduction under Section 80CCC is not limited to resident individuals alone, rather non-resident individuals who contribute towards a pension plan can apply for deduction under this section. If a taxpayer has paid an amount for continuing any annuity plan of an insurance provider to receive pension, he or she can claim a deduction for the sum paid from the gross total income. The tax benefits can only be claimed by individuals and not a Hindu Undivided Family (HUF).

Also, it must be noted that the tax deduction can only be claimed for the year in which the individual has paid the amount. Say, for example, an individual makes a one-time payment, he or she can only claim this deduction on the year for which the payment was made, and not the remaining years when the individual enjoys the coverage. However, if the taxpayer chooses to make regular payments, on an annual basis, the individual can claim the exemption for every year that payment is made.

Terms of Section 80CCC

Some of the conditions associated with claiming deduction under Section 80CCC are:

  • Tax deduction can only be claimed by taxpayers who have deposited some amount towards buying or continuing an annuity plan from LIC or any other insurance company.

  • The maximum deduction that can be claimed during a financial year is Rs. 1,50,000.

  • The policy towards which payments are made has to pay out pension from the accumulated funds, which is as per the terms of Section 10 (23AAB).

  • The taxpayer cannot claim deduction on the interests or bonuses accrued from the policy. Additionally, the proceeds from the policy are taxable.

  • The contribution that is made, on which deduction is being claimed, should be from the income that is chargeable to tax of the concerned individual assessee.

  • The annuity plan’s surrender value, whether in part or in whole, will be treated as income and accordingly taxed.

  • Tax deductions can only be claimed on amounts paid for the preceding year only. In case contributions toward a pension fund are made at one-go, the individual can only claim deduction for the year in which the payment has been made.

Eligibility for Claiming Deductions u/s 80CCC

Any individual taxpayer who contributes toward any annuity plan offered by an insurance company are permitted to claim the deductions under this section. The individual taxpayer can be a resident or non-resident Indian. A HUF or Hindu Undivided Family (HUF) cannot claim tax benefits under this section.

Frequently Asked Questions

What comes under Section 80CCC?

Under Section 80CCC of Income Tax Act 1961, an individual can claim tax deduction for contributions made to certain pension funds. The tax benefit is only for payments in the form of premium for any annuity plan of LIC or any other insurer. The maximum deduction that can be claimed under this section is Rs. 1,50,000.

Are the proceeds from annuity plans tax-free?

No, the proceeds from an annuity plan are not exempt from tax. The amount that is received from the plan, including interest or bonus accrued, is taxable during the year of receipt. Tax deduction under Section 80CCC of the Income Tax Act, 1961, can only be claimed for the contributions made toward an annuity plan.

What is a pension fund in Section 80CCC?

A pension fund is an investment product which provides retirement income. Section 80CCC of the Income Tax Act, 1961 allows taxpayers to claim deductions for contributions made to certain pension funds. To claim this tax benefit, the individual has to make payments to receive pension from a fund, which is referred to under Section 10 (23AAB). The maximum deduction that the individual can claim under Section 80CCC is Rs. 1,50,000.

According to the Income Tax Department, Section 10(23AAB) reads “Any income of a fund set-up by the Life Insurance Corporation of India on or after August 1, 1996 or any other insurer to which contribution is made by any person for receiving pension from such fund, and which is approved by the Controller of Insurance or the Insurance Regulatory and Development Authority of India, is exempt from tax.”

I am a non-resident Indian. Can I claim the deductions?

Yes, Non-Resident Indians (NRIs) can claim deduction under Section 80CCC of the Income Tax Act, 1961, for contribution made to pension funds, which are referred to under Section 10 (23AAB). HUFs are not permitted to claim deduction under this section.

Can I claim deductions under both Sections 80C and 80CCC?

Tax deduction under Section 80CCC is part of the overall deduction under Section 80C. The deduction limit under Section 80CCC is clubbed with the limit of section 80C and 80CCD - which means the overall tax deduction limit that can be claimed is Rs. 1,50,000.

What is 80CCC of Income Tax Act?

According to the Income Tax Department, individual taxpayers can claim tax deduction for “contributions to certain pension funds of LIC or any other insurer (up to Rs. 1,50,000) (subject to certain conditions)”. It further adds that “the aggregate amount of deductions under Section 80C, Section 80CCC and Section 80CCD shall not, in any case, exceed Rs. 1,50,000”.

I have a life insurance cover that is not related to pension schemes. Is it possible to claim benefits u/s 80CCC?

No, you cannot claim tax deduction for payments made towards a life insurance policy not related to pension schemes under Section 80CCC of the Income Tax Act. Premiums paid toward all life insurance policies (ULIPs, endowment policies, term insurance policies, etc.) are eligible for tax benefits under Section 80C of the Income Tax Act, 1961. This deduction can be claimed for premiums paid towards insuring self, spouse, dependent children and any member of Hindu Undivided Family.

Who is eligible to claim deduction under Section 80CCC?

Tax deduction under Section 80CCC can only be claimed by individual taxpayers who contribute towards any annuity plan offered by an insurance company. The individual taxpayer can be a resident and non-resident Indian. A HUF or Hindu Undivided Family (HUF) cannot claim tax benefits of this section.

What are the conditions associated with claiming tax deduction under Section 80CCC?

In order to claim tax deduction under Section 80CCC of the Income Tax Act, 1961, an individual has to keep in mind the following:

  • The maximum deduction that can be claimed under this section during a financial year is Rs. 1,50,000.

  • Tax benefits can only be claimed by individual taxpayers who have deposited some amount towards buying or continuing an annuity plan from LIC or any other insurance company.

  • The policy towards which payments are made has to pay out pension from the accumulated funds, which is as per the terms of Section 10 (23AAB).

  • The individual cannot make a claim for deduction on the interests or bonuses accrued from the policy. In addition to this, the proceeds from the policy are taxable.

  • In case an individual decides to exit the policy, the surrender value, whether in part or in whole, shall be treated as income and accordingly taxed.

  • Tax deductions can only be claimed on payments made for the preceding year only. If contributions toward a pension fund are made together for two years or more, the individual can only claim deduction for the year in which the payment has been made.

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