Deduction Under Section 80CCC

Deduction Under Section 80CCC

Deductions under section 80CCC are in respect to the contribution to certain pension funds.

It is for the contributions made by a person towards specified pension funds that are offered by life insurance. This deduction is kept under the limit of section 80C.

Section 80CCC is a section in the Income Tax Act that provides the advantage to the taxpayers who are earning pension income to claim certain deductions at the time of calculating the taxpayer’s taxable income. 

As a taxpayer in India, the primary advantage of maintaining tax deductions under Sections such as 80C, 80CCD and 80CCC is that doing so will decrease an individual’s taxable income and specific resulting tax liability. 

Section 80CCC of the Income Tax Act of 1961 provides tax deductions for providing to selective pension funds. Section 80CCC came into force on the 1st of April 1997.

The section provides tax deductions for contributions to certain pension funds. Under the section, a maximum deduction of INR 1.5 Lakhs shall be provided for each year on the expenses spent in taking up a new policy that pays the pension or a periodical annuity, or by renewing an already existing policy. 

This section is available in supplement to the deduction which is available under other sections such as Section 80C and 80CCD(1). 

As a result, the maximum aggregate deduction that can be availed by a taxpayer under all the three Sections (80C, 80CCC and 80CCD) is INR 1.5 Lakhs. 

The main points under this section are:

Eligible assessee under section 80CCC

If an assessee, an individual, has in the previous year paid or deposited any amount out of his income chargeable to tax to effect or keep in force a contract for an annuity plan of LIC of India or any other insurer for receiving a pension from the fund set up by LIC or such other insurer, he shall be allowed a deduction in the computation of his total income.

For this section, the interest or bonus accrued or credited to the assessee’s account shall not be reckoned as a contribution.

Hindu Undivided Families cannot obtain the use of this section.

According to the Income Tax Department, an individual taxpayer is eligible to claim these tax deductions for bestowing to certain pension funds of the LIC or any other insurance companies for an amount up to Rs. 1,50,000 subject to the notified conditions. 

Further, the Central Board of Direct Taxes (CBDT) has suggested that the aggregate amount of the deductions under Section 80C, Section 80CCC and Section 80CCD shall not exceed INR 1,50,000, even if the taxpayer is a senior citizen.

The maximum amount of deduction possible under section 80CCC

The maximum amount of deduction permissible under this section is Rs. 1,50,000. But, the maximum deduction under sections 80C, 80CCC and 80CCD(1) consolidates is Rs. 1,50,000.

Deemed income under section 80CCC 

Where any amount is to the credit of the assessee in the terms of the fund in respect of which a deduction has been allowed, together with the interest or bonus accrued or credited to the assessee’s account is brought by the assessee or his nominee on the account of the surrender of the annuity plan in any particular previous year or as pension received from the annuity plan, such amount will be deemed to be the income of the assessee or the nominee in that previous year in which such withdrawal is made or pension is received. It will be liable to tax as income of that previous year.

Key Features under Section 80CCC

  1. The plan must be linked to getting a pension from a fund that is stated in Section 10(23AAB). The amount for the policy must be paid out of the income liable to tax. It should be noted that deduction cannot surpass the taxable income.
  2. Bonuses or interests received from the policy are not eligible to be demanded as a tax deduction.
  3. The proceeds from this policy as a pension fund are accountable for taxes they are considered as income of the previous financial year. This would also include any bonuses or interests if any are permitted.
  4. The amount obtained after the surrender of the annuity plan irrespective of whether in whole or in parts are also chargeable to tax.
  5. The pension obtained from the annuity plan is also liable to tax.

How is section 80CCC different from section 80C?

  • The central distinction between Section 80C and Section 80CCC of the Income Tax Act of 1961 is that following Section 80C, the cost to be paid may result from income that is not liable to tax. While under Section 80CCC the funds must be paid out the income that is chargeable to tax.
  • Individuals who have paid taxes in extra but have funded in policies from LIC, PPF, Mediclaim or other insurance companies may claim these deductions under the Section and receive a refund of excess taxes paid while filing Income Tax Returns.
  • Residents and Non- Residents of India may claim the deductions available under Section 80CCC. However, under no conditions, a Hindu Undivided Family is qualified for deductions under this Section.
  • A person cannot claim further deductions after consuming the limit of INR 1.5 Lakhs under Section 80C, Section 80CCC and 80CCD(1).