Section 80CCC of the Income Tax Act provides individuals with income tax benefits for an annuity plan with a pension fund they may be holding with a life insurer in India. Section 80CCC of the Income Tax Act of 1961 provides deductions of up to Rs. 1.5 lakhs per annum for contributions made by an individual towards specified pension funds that are offered by a life insurance.
What is Section 80CCC
Deduction under section 80CCC is available only to an individual to claim tax deductions for contributions made to certain pension funds. This section provides tax deduction up to a maximum of Rs.1,50,000 during a year on costs incurred in buying a new policy or continuing an existing plan that pays pension or a periodical annuity (as referred to in Section 10(23AAB)).
However, the pension amount received, including interest or bonus accrued on the annuity, is taxable during the year of receipt.
is there any combined maximum celling – The aggregate amount of deduction under section 80C, 80CCC and 80CCD(1) [i.e., Contribution by an employee (or any individual) towards National Pension Scheme (NPS)] cannot exceeds Rs.1,50,000.
What is Section 10(23AAB)
Section 10 (23AAB) of the Income Tax Act, 1961 simply states that if an individual contributes towards an annuity plan offered by the Life Insurance Corporation (LIC) of India on or after August 1, 1996, or contributes to keep in effect a pension plan offered by any other recognized insurer in India, such contribution is tax deductible.
When the fund is accumulated and is paid to the holder of the plan in the form of a pension, this pension is taxed at the holder’s hands and not at the pension level.
Eligibility for Claiming Deductions Under Section 80CCC
- If an individual opts for the new concessional tax regime, then the individual will not be able to claim deduction under section 80CCC.
- Any individual taxpayer who contributes toward any annuity plan offered by an insurance company are permitted to claim the deductions under this section.
- The individual taxpayer can be a resident or non-resident Indian.
- A HUF or Hindu Undivided Family (HUF) cannot claim tax benefits under this section.
- The amount claimed for deduction u/s 80CCC should not exceed net taxable income of the subscriber.
Terms and Conditions of Section 80CCC
Following are the terms and conditions applicable under the Act: –
- Since the tax benefit of 80CCC is available as part of the broader Section 80C, the cumulative threshold of Rs. 1.5 lakh is applicable to section 80CCC tax benefits.
- Pension received from the policy is also considered as part of taxable income.
- Any bonus or interest received from the pension plan/retirement policy is not eligible for tax deduction.
- The tax benefit can only be claimed on the premium amount paid in the applicable financial year. If the payment to the pension funds is made in lump-sum, then the tax deduction under section 80CCC can only be claimed for the year in which the lump sum payment was made.
- The proceeds received on the maturity of the policy are taxable as per the income tax slab.
The taxpayer cannot claim deduction on the interests or bonuses accrued from the policy. Additionally, the proceeds from the policy are taxable.
The policy towards which payments are made has to pay out pension from the accumulated funds, which is as per the terms of Section 10 (23AAB).
Tax Treatment of Payout
Deduction is claimed under section 80CCC and later on pension is received by the assessee (or his nominee), such pension will be taxable in the hands of recipients in the year of receipt. Likewise, where (after claiming deduction under section 80CCC) the assessee or his nominee surrenders the annuity before maturity date of such annuity, the surrender value shall be taxable in the hands of the assessee or his nominee, as the case may be, in the year of receipt.
The amount you receive as the annuity is taxable as per provisions of the income tax law. The tax rate applicable will be according to the income tax slab you fall under which is also mentioned in the income tax act.