Tax Deductions Under Section 80CCC
To avail tax deductions under Section 80CCC, the pension fund or policy should provide a periodic annuity or pension after a specified period. Section 80CCC is clubbed with Section 80C and Section 80CCD(1) so total tax deductions that can be cumulatively claimed is ₹ 1.5 lakhs per annum.
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What is Section 80CCC?
The Section 80CCC of Income Tax Act, 1961, allows an individual to claim deductions in taxes up to a maximum amount of ₹1,50,000 annually for contributions or payments done towards specific pension funds.
The tax deductions under Section 80CCC apply to new policy purchases and/or on money paid towards continuation or renewal of a pre-existing pension fund or life insurance policy. The most important requirement for availing tax deductions under Section 80CCC — the pension fund or policy should provide a periodic annuity or pension after a specified period.
While calculating the total tax deduction amount, Section 80CCC is clubbed with Section 80C and Section 80CCD(1). Therefore, the total tax deductions that can be cumulatively claimed is ₹ 1.5 lakhs per annum.
Key features of Section 80CCC
- Only taxpayers who have made payments from their taxable income towards the continuation, renewal or purchase of an annuity policy from LIC or any pension fund or policy offered by a registered insurance company can avail tax-saving benefits under Section 80CCC.
- The maximum amount that can be claimed for deduction in a given financial year is ₹1,50,000.
- The policy should provide a pension or annuity payout from the accumulated funds as per Section 10(23AAB) of the Income Tax Act, 1961.
- Deduction in taxes can be claimed only on the sum paid towards the pension funds or insurance policy.
- The individual is not eligible to claim any tax exemptions on bonuses or interest accrued from these types of policies. Plus, the amount received as pension from the policy or total accumulated amount after the maturity of the policy is subject to taxation as per the prevailing rates.
- The individual should contribute to their income, which is subject to taxation, to become eligible for deductions under Section 80CCC.
- If the individual surrenders the policy, then the resultant accumulated amount is liable for taxation.
- The deductions in taxes can only be claimed for the sum paid in the given financial year. If the individual makes a lump sum payment towards the pension fund, then only the payment applicable for that particular financial year will qualify for tax exemption as per Section 80CCC.
- Any amount that was deposited before April 2006 does not qualify for tax exemption
- Any kind of rebate that was earlier applicable on annuity investment plans before April 2006 is no longer allowed as per Section 88.
Eligible criteria for tax exemption under Section 80CCC
The eligibility conditions for tax exemption under this section are as follows:
- An individual, either a resident or a non-resident, can claim for tax exemptions under Section 80CCC on investments made in notified or registered pension funds and insurance policies.
- HUF or Hindu Undivided Families are not eligible to avail tax exemption under Section 80CCC.
- The amount that the individual claims for deduction must be paid from the taxable income of the individual.
- The total amount that the individual claims for deduction under Section 80CCC should not be more than the taxable income of the individual.
Deduction on contributions done under Section 80CCC
- Under Section 80CCC of the Income Tax Act, 1961, the individual can claim for deductions in taxes on any kind of deposits or purchases done towards annuity plans or pension funds offered by public sector companies, such as LIC or other registered insurance companies, as per the Section 10(23AAB) of the Income Tax Act.
- The investment should be such that the individual would receive a monthly pension after the maturity of the term.
- The monthly pension received after the maturity of the plan, or the whole amount received after maturity will be deemed as income of the individual and will be subject to taxation as per the prevailing rates.
- Deductions in taxes apply only to the sum paid towards the policy. Any kind of bonuses or interest accrued is excluded from tax exemption.
- The individual can claim for Section 80CCC deduction only on the payment applicable for the previous year. For example, if the individual makes a lump sum payment for three years in a single year, then only the amount applicable to that particular year becomes eligible for tax exemption.
- The maximum tax deduction limit under Section 80CCC is ₹1,50,000.
- The tax deduction limit under 80CC is clubbed with Section 80C and 80CCS(1) to calculate the total applicable deduction limit.
What is Section 10(23AAB)
Section 10(23AAB) of the Income Tax Act, 1961, states that if the taxpayer makes a monetary contribution towards policy or pays money to renew the policy, post 1st August 1996, then the individual qualifies to claim for deductions in taxes on the amount paid.
Further eligibility criteria include:
- The policy or insurance provider must be recognised and the policy structure approved by the IRDA (Insurance Regulatory Development Authority of India).
- The policy should have the provision of providing a monthly pension amount to the individual in the future.
After you meet these requirement conditions, you will become eligible for tax deductions as per Section 80CCC.
Exclusions in Section 80CCC
- Third-party payments done towards the pension fund of the individual do not qualify for tax exemption. The individual has to make the payment from their taxable income to become eligible for tax deductions.
- HUF or Hindu Undivided Family are not eligible to claim for deductions under Section 80CCC.
Frequently Asked Questions
- Is the amount received after maturity from the annuity plan tax-free?
No. The interest earned from the policy will be termed as income at the time of maturity, and income tax will be applicable according to the prescribed slabs.
- If the individual has a life insurance policy which does not provide pension, can the individual claim benefits as per Section 80 CCC?
A life insurance policy does not qualify for tax deductions under Section 80CCC. However, the individual can still claim for tax deductions under Section 80C on the payment of premiums.
- If the individual is a non-resident, can they claim for tax deductions?
Yes. Non-resident Indians, who have paid money to approved and registered pension funds can claim for tax benefits under Section 80CCC.
- Can an individual claim for deductions under Section 80CCC as well as Section 80C?
Section 80CCC is a part of the broader Section 80C. The tax exemption limit under 80CCC is ₹1 lakh, while tax exemption limit under 80C is ₹1.5 lakhs. As Section 80CCC falls under Section 80C category, the total deduction limit that applies to 80CCC is ₹1.5 lakhs. Thus, the deductions under 80CCC when clubbed with deductions under Section 80C should not exceed the maximum limit of ₹1.5 lakhs.
- Who can claim deductions under Section 80CCC?
Only an individual who has contributed towards the purchase or renewals of pension policy is eligible to claim for Section 80CCC deductions. HUF or Hindu Undivided Families do not qualify for Section 80CCC deductions.
To avail for tax benefits under Section 80CCC, you must check the amount paid towards different life insurance policies. This is because the deductions under 80CCC will get clubbed with 80C and 80CCD(1) deductions. And their cumulative total maximum deduction limit is only ₹1.5 lakhs. So, make sure that your ₹1.5 lakhs is evenly divided across all tax-saving instruments under Section 80C to avail the most benefits of these tax-saving instruments.
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