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Section 80CCC - Income Tax Deductions on Pension Fund Contributions

Updated on: Mar 21st, 2024

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5 min read

Section 80CCC of the Income Tax Act of 1961 allows for annual deductions of up to Rs.1.5 lakh for contributions made by an individual to designated pension plans provided by life insurance. The deduction is limited by Section 80C.

What is Section 80CCC?

The Section 80CCC exemption limit includes the money spent on the purchase of a new policy or payments made towards the renewal or continuation of an existing policy. 

The primary condition for availing this exemption is that the policy for which the money has been spent must be providing a pension or a periodical annuity. 

Section 80CCC is read along with Section 80C and Section 80CCD(1), thereby limiting the total exemption limit to Rs. 1,50,000 per annum.

Terms and Conditions of Section 80CCC

Following are the terms and conditions applicable under the Act: –

  • Available to those individuals who have paid the sum for renewal or purchase of a life insurance policy from their taxable income.
  • The payment of funds from the policy should be made as per the terms of Section 10 (23AAB) from the accumulated funds.
  • If any bonuses are received or interest is accrued, it is not eligible for deduction under Section 80CCC.
  • Any amount received from the policy as a monthly pension is liable for taxation as per the prevailing rates.
  • If the policy is surrendered, the amount would also be subject to taxation.

What is Section 10 (23AAB)

The provisions of Section 10 (23AAB) are inherently linked with Section 80CCC. It relates to the income earned from a fund that has been set up by a recognised insurer, including the LIC. 

The fund must have been set up before August 1996 as a pension scheme. The contributions made by the taxpayer to the policy must have been with the intention of earning pension income in the future.

Eligibility for Deduction Under Section 80CCC

The conditions regarding eligibility for deductions are:  

  • An individual taxpayer who has subscribed to an annuity plan which has been offered by an approved insurance company.
  • HUF or Hindu Undivided Family is not eligible for exemption under Section 80CCC.
  • These provisions apply to both residents as well as non-residents.

Important Points Related to Section 80CCC

Here are some essential points that you must know regarding the applicability of the 80CCC Section:

  • The deduction limits available under Section 80CCC are clubbed together with Section 80C and Section 80CCD (1) to determine the total deduction limit available.
  • The provisions of Section 80CCC are specifically applicable to those insurance providers in India that offer annuity or pension plans. The insurer could be a public entity or a private entity as well. 
  • The deductions are applicable for the premium/sum paid for the preceding Assessment Year only. For instance, if an individual pays the sum for 2-3 years together, then a deduction can only be claimed for the amount that pertains to the preceding year.
  • The maximum available deduction under this Section is Rs.1,50,000 per annum.

With the provisions of Section 80CCC, you can save a significant sum of money towards your taxation liability. 

To be eligible to avail this exemption, you must keep a record of the transaction for the payment of money towards the insurance policy.

Under no circumstances can the exemption limit exceed the income of the individual. Along with Section 80CCC, there are several other provisions also under the Income Tax Act to help you save your taxation liability.

Frequently Asked Questions

Can NRIs claim deduction under section 80CCC?

Yes, NRIs can claim this deduction if the contributions are made to the pension funds mentioned as per Section 10 (23AAB).

Are the proceeds from annuity plans exempt from tax?

No, such receipts are not tax-free. The proceeds, including a bonus or interest accrued, are made taxable in the year of receipt.

Can I claim deductions under sections 80C and 80CCC?

The deduction under 80CCC is part of the overall deduction under section 80C. The deduction under this section is clubbed under the deduction of 80C and 80CCD. Hence total deduction of Rs 1.5 lakh is available.

Is deduction under 80CCC available in the new regime ?

No, Deduction under 80CCC is not applicable if you opt for new regime.

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Quick Summary

Section 80CCC of the Income Tax Act allows deductions up to Rs.1.5 lakh annually for contributions to designated pension plans from life insurance. It's linked with Section 80C and Section 80CCD(1). Terms apply like being available only for individuals, policy providing pension/annuity, and following Section 10 (23AAB) terms. Deduction limits are overall Rs.1,50,000 per year, applicable for premium paid in the previous Assessment Year.

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