Section 80CCC of Income Tax Act
The taxes that citizens pay every year go a long way in enabling the government to improve the infrastructure of the country. The government is also able to provide better amenities to citizens because of the tax amount that is collected.
The government also strives to prevent creating a burden on the taxpayers due to taxation. With that aim in mind, the Income Tax Act, 1961 (ITA) was launched. This act provides information on several exemptions and deductions to reduce the assessees’ tax liability.
It is important for an individual to understand the Income Tax Act. And we will help you with that. Today, we’ll go over everything that you need to know about Section 80CCC.
What is Section 80CCC of the Income Tax Act?
Section 80CCC is a subsection that falls under Section 80C of the Income Tax Act. It helps in reducing the tax outgo and enables the individual to secure financial stability in retirement. This section plays great importance in saving taxes and ensuring financial security in old age.
Under Section 80CCC, all deposits that one makes into an annuity plan with a pension fund from a life insurance company are eligible for deductions from the income. One can claim a maximum deduction of INR 1.5 lakh under this section. It should be noted that this is in conjunction with Section 80C and Section 80CCD.
Hence, if you enter into any pension scheme from a life insurance provider, then you could rest assured that you will receive lifelong income and a tax break. One can also claim deductions every time that they pay their renewal premium.
The Significance of Section 10 (23AAB) and Section 80CCC
It should be noted that pension funds that are only specified under Section 10 (23AAB) are eligible for the Section 80CCC tax benefit. According to the current tax laws, deductions are only applicable for contributions towards annuity plans of the Life Insurance Corporation (LIC) or other pension funds.
These funds should be held under insurance companies that are registered with the Insurance Regulatory and Development Authority of India. Because of this, a retirement scheme launched by a mutual fund company will not be eligible for tax relief.
Understanding the Tax Treatment of the Income Earned from an Annuity Plan
The pension that an individual receives from an annuity plan or the amount that one gets on surrendering the policy is deemed as an income. This means that an individual will have to pay tax on the amount earned according to the applicable tax slab.
Further, bonuses declared or interest generated on investment plans are also taxable. However, in the case of a deferred pension plan, an individual can withdraw 1/3rd of the accumulated funds at the end of the deferment period. This can be done without having to pay taxes. This tax-free pension commutation is permissible under Section 10 (10A) of the Income Tax Act.
Ideally, it is also recommended that one should make the necessary arrangements for the nominee. This will ensure that someone continues to receive that income in the absence of the investor. In that case, this amount will be treated as the nominee’s income and it will be taxable.
Terms and Conditions Applicable to Section 80CCC Deductions
There are some important terms and conditions that are applicable to Section 80CCC deductions. These terms and conditions are mentioned in the list that is given below.
- The most critical condition for claiming this deduction is that the pension plan must pay out a periodical annuity. This can also be an income from accumulated funds
- Tax benefits are paid on the premium amount that was used to buy or renew any particular life insurance annuity plan. This should be according to the guidelines mentioned under Section 10 (23AB)
- The payments for the annuity plan must be made from the taxable portion of an individual’s income
- One can claim the deduction only for the financial year in which one has contributed towards the plan. One can apply for a tax break in the year when he or she has made a lump-sum payment. No benefits will be provided during the subsequent years when the plan is in force
- One can claim the deduction for every year that he or she pays the premium amount. This is only applicable in the case of a regular premium payment plan
The Salient Features of Section 80CCC
The salient features associated with Section 80CCC of the Income Tax Act are mentioned in the list given below.
- Any pension amount, interest earned on the annuity, and any bonuses received are taxable as income
- If the policy is surrendered, then the amount that one gets as the surrender value is taxable. Payouts are also taxable according to the tax slabs
- Interests earned on investments and bonuses are not exempted from tax
- The deduction value cannot be more than the taxable income value
- One cannot claim the rebates that are available for investing in an annuity scheme before April 2006
- Payments made towards other pension schemes like the National Pension System or Atal Pension Yojna do not qualify for Section 80CCC deductions
- The tax benefit is subject to the cumulative value of INR 1.5 lakh. This is applicable to the aggregate of the investments and expenses under Section 80C, 80CCD, and 80CCC
Eligibility for Tax Deductions Under Section 80CCC
An individual can take advantage of this deduction only if the individual taxpayers pay an amount to buy or continue a pension-providing annuity plan from an insurance company. This benefit is also not available for a Hindu Undivided Family (HUF).
Beyond this, the following parties are not eligible for 80CCC benefits:
- Sole proprietorships
One should also remember that the deductions applicable under Section 80CCC are not just limited to Indian residents. Non-resident Indians who contribute towards any eligible pension plans can also apply for this decision. In the latter case, the deduction is subject to taxes in India.