Section 80CCC of the Income Tax Act, 1961 is part of the broader 80 C category which allows cumulative tax deduction up to Rs. 1.5 lakh annually for investments made into PPF, EPF/VPF, life insurance, notified pension funds, etc. Section 80CCC specifically allows investors to claim tax deductions in lieu of contributions made to pension funds.
However, it should be noted that only specific pension funds specified under section 10 (23AAB) are eligible for the tax deduction offered as part of Section 80CCC. Under existing rules, tax deductions are allowed for individuals who make contributions to an annuity plan of Life Insurance Corporation (LIC) or any other pension fund offered by registered insurance companies in India. Thus pension funds and retirement schemes offered by mutual fund companies do not offer tax benefits under section 80CCC, while the National Pension System allows deduction under a different section of the IT Act – 80CCD.
Eligibility Criteria Under Section 80CCC
- Any individual, resident as well as non-resident, is allowed to claim tax deduction under section 80CCC (subject to making investment in notified pension funds).
- Hindu Undivided Family (HUF) can not claim the tax benefit under Section 80CCC.
- The amount claimed for deduction is deemed to have been paid from the net taxable income of the pension fund subscriber
- The amount claimed for deduction u/s 80CCC should not exceed net taxable income of the subscriber.
Section 80CCC: Key Features
The following are some key factors to keep in mind when claiming tax benefit offered by Section 80CCC:
- Any bonus or interest received from the pension plan/retirement policy is not eligible for tax deduction.
- The proceeds received on the maturity of the policy are taxable as per the income tax slab.
- If the pension plan payout is in the form of annuities i.e. monthly income, it is taxable on the basis of the tax slab rate of the investor.
- Pension received from the policy is also considered as part of taxable income.
- 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 u/s 80CCC can only be claimed for the year in which the lump sum payment was made.
- 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.
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 recognised insurer in India, such contribution is tax deductible. This benefit is available only if the insurer providing the pension plan to the subscriber is approved by the Insurance and Development Authority of India (IRDAI).
What is the difference between section 80C and 80CCC?
The primary difference between section 80C and 80CCC is that under section 80C the amount claimed for deduction can also come from that part of the income which is not chargeable for tax. However, under section 80CCC, it is mandatory that the payment to the pension fund must have been made from income chargeable for tax, in order to claim tax benefit. Additionally, the broader section 80C deduction includes multiple instruments whereas 80CCC deduction is specific only to pension fund/annuity contributions.
Is the tax benefit available for contributions made to NPS or APY covered under section 80CCC?
No, you cannot claim tax deduction under section 80CCC for contributions made to National Pension System (NPS) or Atal Pension Yojna (APY). However, such contributions are eligible for tax deduction under section 80CCD of the Income Tax Act, 1961 subject to applicable terms and conditions. .