The Income Tax Act of 1961 contains several provisions that help taxpayers reduce their overall tax liability. Section 80CCC is one of the many tax-saving provisions contained in the act. This particular section not only enables taxpayers to save taxes but also encourages them to build a corpus to meet their long-term financial objectives.
If you are a taxpayer who wants to optimise your tax savings while simultaneously securing your future, knowing how to properly utilise section 80CCC of the Income Tax Act is crucial. Here is everything you need to know about this specific section.
What is Section 80CCC of the Income Tax Act?
Section 80CCC of the Income Tax Act deals with tax deductions for individuals who contribute to specific pension funds. The provisions of this section allow taxpayers to claim the amount they pay towards a pension or annuity plan of a life insurance company as a deduction from the total income.
The primary objective of section 80CCC of the Income Tax Act is to promote retirement planning among individuals by offering tax benefits on investments made in pension and annuity plans.
Section 80CCC forms a part of section 80C deductions. Therefore, the maximum amount of deduction available in a financial year is subject to the overall limit of ₹1.5 lakh as specified by section 80C of the Income Tax Act. This essentially means that the available deduction amount under sections 80C, 80CCC and 80CCD combined is ₹1.5 lakh per financial year.
Who Can Claim the Benefits Under Section 80CCC of the Income Tax Act?
The deduction under section 80CCC of the Income Tax Act is only available to resident and non-resident individual taxpayers who contribute to a pension or annuity plan of a life insurance company.
The benefits under section 80CCC are unavailable to Hindu Undivided Families (HUFs), sole-proprietors and non-individual entities like companies, trusts, cooperative societies, and associations.
Criteria for Availing the Benefits of Section 80CCC of the Income Tax Act
Certain key criteria must be satisfied to claim the benefits under section 80CCC of the Income Tax Act. Here is a quick overview of what they are.
- The pension or annuity plan must be offered by a life insurance company that is registered with the Insurance Regulatory and Development Authority of India (IRDAI).
- The pension or annuity fund should have been set up on or after August 1, 1996.
- The contribution towards the plan must be made from the taxable income of the individual taxpayer claiming the benefits under 80CCC.
- The premiums paid for the purchase of a new plan or renewal of an existing plan can be claimed as a deduction.
- If the premiums for multiple years are paid upfront, then the deduction under section 80CCC can be availed of only on a pro-rata basis. For example, assume you pay a premium of ₹1 lakh for 4 years upfront. In this case, you can claim a maximum of ₹25,000 during a financial year for up to 4 financial years. This is assuming that the premiums for all 4 years are equal.
- The amount being claimed under section 80CCC of the Income Tax Act must be less than the net taxable income.
- Taxpayers must keep a record of the premium paid towards the pension or annuity plan.
Key Aspects of Section 80CCC of the Income Tax Act
Taxpayers planning to utilise section 80CCC of the Income Tax Act to reduce their overall tax liability must keep the following key points in mind.
- No Double Benefit
Taxpayers cannot claim a deduction of ₹1.5 lakh each under section 80CCC and section 80C. The total deduction limit of ₹1.5 lakh under section 80CCC is inclusive of deductions claimed under sections 80C and 80CCD.
- Implications on Surrender or Withdrawal of Pension Plan
If the pension or annuity plan is surrendered or withdrawn before its maturity date, the proceeds from such withdrawal or surrender shall be taxable. The amount will be added to the total income and taxed as per the individual taxpayer’s income slab.
Additionally, the contribution made to the pension or annuity plan during the year in which the policy was prematurely surrendered or withdrawn shall be disallowed as a deduction under section 80CCC of the Income Tax Act.
- Taxability of Pensions
The regular pension that taxpayers receive after the plan matures shall be added to the total income under the head ‘Salaries’ and taxed according to the applicable income slabs.
- Ineligibility of Deductions
Bonuses, loyalty additions and interest accrued on the pension or annuity plan cannot be claimed as a deduction under section 80CCC of the Income Tax Act. Only the contributions made towards the plan are eligible for deduction.
Conclusion
This concludes all the key aspects of section 80CCC of the Income Tax Act. If you invest in any of the eligible pension funds under this section and if you are eligible for this benefit, ensure that you claim it when you are filing your income tax return (ITR). However, keep in mind that this benefit is only available if you opt for the old tax regime. If you choose the new tax regime instead, you can potentially benefit from lower tax rates, even if the 80CCC deductions are not available to you.
FAQs
What is the maximum 80CCC deduction limit as per the Income Tax Act?
The maximum permissible amount for section 80CCC deductions is ₹1.5 lakhs. This limit also includes the deductions allowed under sections 80C and 80CCD.
Can non-resident Indians claim the benefits of section 80CCC of the Income Tax Act?
Yes, the benefit of deductions for investment in section 80CCC pension plans is available to non-resident Indians too. They must, however, meet the other eligibility criteria for this deduction.
Is the section 80CCC deduction available to taxpayers who opt for the new tax regime?
No, the benefit of section 80CCC of the Income Tax Act is only available for taxpayers choosing the old tax regime. It is not available under the new tax regime.
Is the maturity amount from a section 80CCC pension fund taxable?
Yes, the amount that you receive from your pension plan (including bonus, loyalty payments, interest, etc.) is taxable under the Income Tax Act. Only the investments made in such plans are eligible for 80CCC deductions.
Can I invest in multiple section 80CCC pension funds?
Yes, you can invest in different pension funds. However, the total deduction allowed for all your investments in multiple 80CCC pension plans is capped at ₹1.5 lakh.
