Section 80CCC of the Income Tax Act: Eligibility and Key Points

Chapter VI A of the Income Tax Act,1961, is an important section when we talk about deductions. This chapter lists all the sections under which you can claim a deduction for your taxable income. Section 80CCC under Chapter VI A lists the tax deductions you can get if you invest in a life insurance pension plan. 

Section 80CCC of the Income Tax Act, 1961, allows taxpayers to claim deductions on tax for contributions that are made to specific pension funds. It provides deductions on tax up to a maximum of ₹1.5 Lakhs during a year on costs that are incurred in buying a new pension plan or continuing an existing policy that pays periodical annuity or a pension. Nevertheless, the amount received as bonus or interest on the annuity, is taxable during the receipt year.

The deduction under this section is allowed only to individuals who fulfil the eligibility criteria mentioned below -

• Renewal or purchase of a life insurance policy from the taxable income

• The annuity plan or pension has to be issued by the Life Insurance Corporation of India (LIC) or any other policy that is set up by a recognised insurer

• The payment should be in accordance with the provisions of Section 10, Clause 23AAB

• The deduction amount claimed under this section should not exceed ₹1.5 Lakhs

Kindly keep in mind the following terms and conditions when claiming Section 80CCC deductions-

• The accrued funds of the pension policy must be paid as per the provisions that are specified under Section 10(23AAB)

• If the pension policy earns any interest or bonus and the same is distributed to the taxpayers along with annuity payments, the interest or bonus will not be eligible for deductions. Such an interest or bonus will be taxable.

• The payout from the pension plan is considered as taxable income

• If the individual surrenders the pension policy, the surrender value received is taxable

• Individuals cannot claim a tax deduction under Section 80C for this amount on any tax return filed after April 2006

The section states that the amount that is paid for the qualifying pension plans is deductible up to ₹1.5 Lakhs. Additionally, these tax benefit limits under this section are to be read simultaneously with the provisions listed under Sections 80C and 80CCD.

This means that the total tax benefit amount that you can get from all three sections combined. i.e, 80CCD, 80C and 80CCC cannot be more than ₹2 Lakhs.

As per Section 80CCC of the Income Tax Act, 1961, the amount that is invested in the pension scheme is returned to the policyholder as a monthly pension after a specific period of time. If the policyholder withdraws from the policy, the invested amount will be returned back to the taxpayer with interest.

When the nominee or taxpayer surrenders the plan, the amount that was previously claimed under this section will be taxable during the time of receipt depending on the policyholder’s income tax slab. The same is applicable to the amount received as annuity

According to Section 80CCC of the Income Tax Act, once the pension plan or annuity has reached maturity, an aggregate amount is typically paid out to the policyholder. This is often followed by periodic regular payments for a specific period of time or for life. These proceeds are taxable in accordance with the income tax slab.

In addition, in case you decide to prematurely surrender your policy, the company will payout a surrender value if you are eligible for the benefit. This value is calculated generally as a percentage of the premium that is paid from the purchase to the surrender time. According to the provisions of the Income Tax Act, the received proceeds are taxable.