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Regular post-retirement income | Additional tax benefit on investments up to ₹50,000 u/s 80CCD (1B) - EEE Category | Regulated by PFRDA (Pension fund regulator under Ministry of Finance, Govt. of India)

The IT Act of 1961 lets individuals claim exemptions and deductions on their total income. These exemptions and deductions help taxpayers to decrease their taxable income which reduces their liability of tax. Thus, individuals who pay tax try to avail as many exemptions and  deductions as possible to reduce the income that is taxable to the maximum extent.

Chapter VI A of the IT Act,1961 is a very popular section when we talk about deductions. This chapter lists all the sections under which you can claim deduction for your income that is taxable. These deductions are allowed for eligible expenses you incur and investment that you do in a particular financial year. Chapter VI A is a section under Section 80CCC that allows deduction if you invest in a life insurance pension plan.

This section contains a lot of conditions and aspects that you should fulfil in order to be eligible to claim deduction. Let us try to understand Section CCC in detail-

What is Section 80CCC of the Income Tax Act?

Section 80CCC of the IT Act, 1961, allows taxpayers to claim deductions on tax for contributions that are made to specific pension funds. Section 80CCC provides deductions on tax up to a maximum of Rs.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 from pension, including bonus or interest accrued on the annuity, is taxable during the receipt year.

Eligibility Requirements for Deductions u/s Section 80CCC

The deduction under this section is allowed only to individuals who fulfil the eligibility criteria mentioned under this section. These conditions include-

  • This section allows any resident or non-resident individual to seek a tax deduction subject to making an investment in specific pension plans.

  • The Hindu Undivided Family (HUF) cannot enjoy the tax benefit under this section.

  • The deduction amount claimed is assumed to have been paid from the pension fund policy holder's net taxable income.

  • The deduction amount claimed under this section should not exceed the policy holder’s net taxable income.

Terms And Conditions for Deduction u/s Section 80CCC

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

  • The premium that is paid should be either for renewing an existing pension policy or buying a new pension policy. 

  • 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 applicable as deduction. Such an interest or bonus will be taxable in the hands of the individual.

  • The payout from the pension plan is considered as an income that is taxable in the hands of the individual.

  • If the individual surrenders the pension policy, the surrender value that is received  is taxable in the hands of the individual.

  • Any rebate which was offered on investments that are done in annuity plans before April 2006 under Section 88 will not be allowed anymore.

  • If the individual deposits money before April 2006 into a pension policy, that amount will not be eligible for deduction.

Key Points Regarding Deductions Under Section 80CCC

Apart from the basic provisions that are mentioned above, this section comes with clauses that decide whether or not the instalments for the annuity plan or pension is eligible for deduction under Section 80CCC. Some key points about this section are:

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

  • The amount that is paid should be for the purpose of renewing an existing plan, or for buying a new plan.

  • The amount that is paid is from the taxable income

  • Bonuses and interest amounts that are credited to your account from the policy are not eligible for deduction.

Limit on Tax Benefits Offered by Section 80CCC

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

This means that the total tax benefit amount that you can get from all the three sections combined. i.e, 80CCD, 80C and 80CCC cannot be more than Rs.1.5 lakhs. 

Section 80C specifies all the expenses and investments that qualify for deductions. Some of these are-

  • Public Provident Fund (PPF) Investment

  • Equity-Linked Savings Scheme (ELSS) Investment 

  • 5-year tax-saving FDs

  • National Savings Certificate (NSC) Investment 

  • Repayment of principal component of housing loan

As for section 80CCD, it allows for deductions for amounts that are parked in investments like Atal Pension Yojana and National Pension Scheme (NPS).

Withdrawal/Surrender of the Policy

As per Section 80CCC of the Income Tax Act, 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 for the amount received as annuity.

Difference between Section 80C and 80CCC

The main difference between Section 80CCC and Section 80C of the IT Act is that the amount paid under Section 80C can originate from non-taxable income. On the other hand, Section 80CCC the amount has to be paid from taxable income.

Taxpayers who have overpaid their taxes but have invested in plans like PCC, LIC,Mediclaim cam receive refund for overpaid taxes when filing returns for income tax.

The deductions that are permitted under this section are available to both non residents as well as residents of India. A HUF, however, is not entitled for deductions under Section 80CCC.

After exhausting the maximum amount of Rs.1.5 lakhs under Section 80CCC, 80CCD and 80C, an individual cannot claim any more deductions.

Taxation on Maturity Proceeds

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 IT Act, the received proceeds are taxable.

FAQs On Section 80CCC

✔️Can you claim deductions under Section 80CCC and Section 80C?

Yes, you can claim for deductions under Section 80CCC as well as Section 80C but the highest deduction that would be allowed is Rs.1.5 lakhs.

✔️How many times can I use deduction under the Section 80CCC in a year?

The deductions under Section 80CCC can only be claimed once a year.

✔️Can non-residents of india’s claim Section 80CCC deduction?

Yes, NRIs can claim deduction under Section 80CCC. However, under Section 10, claim deductions can only be made on contributions made to pension funds .

✔️If I have a life insurance policy which is unrelated to pension policies. Can I get deductions under Section 80CCC?

The clause does not permit the use of a life insurance plan to enjoy deductions but you can still claim for the premium paid.

✔️Is the tax benefit available for contributions made to NPS or APY covered under section 80CCC?

No, you can not claim deduction on tax under this section for contributions made to NPS or APY. Nevertheless, the contributions are eligible for tax deduction under Section 80CCD of the IT Act, 1961.