80ccc Contribution To Pension Fund

Section 80CCC of the ITA, 1961 enables tax deductions of up to ₹1.5 lakhs for contributions made by the taxpayer towards certain pension funds under a life insurance policy.

The 80CCC limit is within that of section 80C. The latter (80C) is a broader section that enables tax exemptions for investment towards EPF/VPF, PPF and life insurance plans. To claim this deduction (80CCC), citizens must invest in 80CCC investment options listed under Section 10 (23AAB).

It is important to note, however, that the pension amount received (including interest or bonus accrued on the annuity) is taxable during the year of receipt. Additionally, the 80CCC limit is inclusive of section 80C and section 80CCD.

In other words, the overall tax deduction limit under sections Section 80C, 80CCC, and 80CCD(1) is capped at ₹1,50,000 per year.

80CCC deduction can only be availed of by taxpayers who adhere to the following conditions:

• You can claim an 80CCC deduction if you have purchased or renewed an annuity plan from LIC or any other recognised insurance company

• The maximum tax deduction under 80CCC is ₹1.5 lakhs (in one financial year)

• The policy that would be receiving the payment (including the 80CCC contribution to the pension fund) must use the accumulated funds to pay pensions, following terms outlined under Section 10 (23AAB)

• No deduction can be claimed on the bonuses or interest accrued from the policy. These proceeds are taxable.

• The contribution toward claim deduction must come from the taxable income of the concerned citizen who is making the contribution.

• The surrender value of the annuity plan (whether partly or wholly) is considered to be income and is taxed accordingly.

• Tax deductions can only be made towards money that has been paid in the previous financial year. If a one-time payment has been made towards an 80CCC contribution to the pension fund, the deduction can only be made in the year in which the payment was made.

The provisions under Section 10 (23AAB) are essentially linked with section 80CCC. It is concerned with income that is generated from a fund and has been set up by a recognised insurance provider including the LIC.

This fund, however, should have been set up prior to August 1996 as a pension scheme. It intends to ensure that the contributions made by the individual towards the policy are with the purpose of earning a pension income in the future.

Here are 80CCC investment options that can help individuals optimise their tax savings:

Pension Plans by Insurance Providers: Taxpayers can avail of deductions under Section 80CCC for payments made towards private pension plans offered by insurance companies. These plans are curated for financial security during retirement and generally require regular contributions for a specific period.

Pension Plans by Certain Mutual Funds: Contributions made towards pension plans provided by specific mutual funds are also eligible for deductions under section 80CCC of the Income Tax Act. These mutual fund pension plans are designed to help taxpayers save for their retirement while diversifying their portfolios.

Now that we are aware of the various 80CCC investment options, let’s explore the eligibility criteria for claiming tax deductions under 80CCC.

Here is the eligibility for the 80CCC deduction:

• Under section 80CCC, any individual (whether resident or non-resident) can seek tax deduction (considering they have invested in a notified pension fund)

• The 80CCC tax benefit cannot be availed of by a Hindu Undivided Family (HUF)

• The deduction amount for 80CCC is assumed to be paid from the net taxable income of the individual

• The deduction claimed under 80CCC should not exceed the net taxable income of the taxpayer

To simplify understanding regarding section 80CCC, it is important to know how it is different from section 80C of the ITA.

• The sum to be paid under section 80C can be made through income that is not taxable whereas payments made under section 80CCC must mandatorily be from taxable income.

• If taxes have been overpaid but the individual has invested in policies from LIC, PPF, Mediclaim, or other insurance providers, they can reclaim deductions under section 80CCC and receive a refund when filing for income tax returns.

• The deductions under section 80CCC are eligible for both Indian citizens as well as non-residents. However, a Hindu Undivided Family is not eligible to receive deductions under section 80CCC.

• Once the deductions have been claimed for ₹1.5 lakhs, no more deductions can be claimed under sections 80C, 80CCC and 80CCD.

The deduction available under section 80CCC falls within the limit of section 80C. To claim this deduction, the taxpayer must either purchase a life insurance policy or renew a policy that provides a pension.

The pensions paid out by the plan on maturity, along with any interest, however, are taxable according to applicable slab rates.

While life insurance helps your family bear financial loss in the case of an untimely demise, a health insurance plan looks after medical expenses while you are still alive. Therefore, a reliable financial plan must comprise both life insurance and health insurance.

Under section 80D of the ITA, deductions of up to ₹25,000 can be claimed every financial year towards medical insurance premiums. However, before investing in a policy it is important to compare health insurance plans so you can find a policy that best meets your requirements.

We at at Tata AIG offer several medical insurance plans on our website, that can be tailored to your healthcare needs. Moreover, our online services allow you to buy, renew and file claims online from the comfort of your home.