Section 80CCC - Income Tax Deductions on Pension Fund Contributions

The government provides tax benefits to individuals for investing in pension or annuity plans by the Life Insurance Corporation and other insurers approved by the Insurance Regulatory and Development Authority (IRDA). This is done to help individuals save money (lump sum or annuity) for their retirement. An individual can claim the deduction of Rs. 1.5 lakh for investment in pension and annuity plans. However, the deduction limit of Rs. 1.5 lakh is applicable along with the combined limit of section 80 C, section 80CCC section 80CCD(1).

What is Section 80CCC?

Section 80CCC allows individuals to claim a deduction up to a specific limit on the sum invested in purchasing or paying a premium on a pension plan offered by the Life Insurance Corporation (LIC) or other insurers approved by the Insurance Regulatory and Development Authority (IRDA). Specific Pension funds approved under section 10(23AAB) are eligible for deduction under section 80CCC.

The taxpayer can claim a deduction on investment under sections 80C, 80CCC, and 80 CCD(1) up to Rs. 1.5 lakh in a financial year.

Eligible Pension Funds

There is a relation between Section 10(23AAB) and Section 80CCC. The pension schemes that meet the following criteria are eligible for deduction under section 80CCC:

• Set up by Life Insurance Corporation or other insureres approved by Insurance Regulatory and Development Authority (IRDA) on or after August 1,1996.
• The motive of investing in a pension scheme is not to earn income, but solely for retirement savings.
• The amount invested in the pension funds under section 10(23AAB) is not taxable.

Terms and Conditions

Following are the terms and conditions to obtain deduction under Section 80CCC: 

• Both resident and non-resident individuals can avail of the deduction under section 80CCC by the amount invested in pension schemes, or renewal of pension scheme.
• HUF or Hindu Undivided Family is not eligible for exemption under Section 80CCC.
• The pension funds should meet the criteria of pension funds covered under section 10(23AAB)
• Any interest or bonuses on the pension fund amount are taxable.
• Any monthly payment issued by a pension policy is also subject to tax.
• If you surrender the partial or complete amount of your pension plan, the surrendered amount is taxable.

Important Points Related to Section 80CCC

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

• The combined deduction under section 80C, 80CCC and 80CCD(1) together qualifies for the deduction limit of Rs. 1.5 lakh.
• The insurers approved by IRDA that provide pension or annuity plans under section 80CCC are public and private entities.
• 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 remaining deductions will be available in the respective year.
• The maximum available deduction under this Section is Rs. 1.5 lakh per annum.

Section 80CCE and Section 80CCD(1b)

Under section 80CCE, the aggregate deduction under section 80C, section 80CCC, section 80CCD(1) is covered and allowed up to the limit of Rs. 1.5 lakh. However, under section 80CCD(1b), an individual can avail of additional Rs 50,000 for contribution towards the National Pension Scheme as notified by the government. 

Conclusion 

With the provisions of Section 80CCC, you can save a significant sum of money towards your taxation liability. 
To be eligible to avail this deduction, you must keep a record of the transaction for the payment of money towards the insurance policy. Under no circumstances the deduction amount can 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.

Related Articles

Section 80C
Section 80CCD