Section 80CCC

5paisa Research Team Date: 27 Apr, 2023 06:59 PM IST


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A number of provisions in the Income Tax Act of 1961 allow taxpayers to lower their taxable income by claiming tax credits and deductions. Section 80CCC is one of these rules. It enables people to receive a tax break for the money they invest in an insurance company's annuity plan. But in order to get a deduction under Section 80CCC, there are some rules and restrictions that people need to know about. 

In this blog, we will check out the details of Section 80CCC and everything you need to know to claim tax benefits under this provision.

What is Deduction under Section 80CCC?

A deduction under Section 80CCC of the Income Tax Act of 1961 gives people who put money into certain pension funds offered by a life insurance policy an extra tax break. This deduction comes on top of the Rs. 1.5 lakh that you are able to deduct under Section 80C. The overall sum that an individual contributes to one of these pension plans is eligible for a tax deduction of up to 1.50 lakh rupees each year.

Characteristics of Section 80CCD from the Income Tax Act of India

●    Eligibility criteria

Under Section 80CCD, taxpayers can get a tax break if they put some of their taxable income toward buying or renewing an annuity plan from LIC or another insurer.

    Pension payment from accrued funds

Sections 10 and 23AAB say that the policy should pay the pension from the funds that have been saved up, and that the interest or bonuses earned because of the policy are not tax deductible.

●    Maximum deduction limit

The maximum permissible deduction for a fiscal year was previously Rs. 1 lakh. However, it was increased to Rs. 1.5 lakhs from April 1, 2016, for the fiscal year 2016-17 onwards.

●    Taxation of annuity plan

The annuity plan's surrender value will be treated as income and taxed appropriately. Also, the pension funds that come from the policy are taxed because they are considered income from the year before. This includes any accrued interest and incentives.

●    Non-applicability of Section 88 and Section 80C

Section 88 says that investments in annuity programmes made before April 1, 2006, are not eligible for rebates, and Section 80C says that amounts put in before this date are also not eligible for deductions.

Who is Eligible for Section 80CCD?

For taxpayers to be able to use Section 80CCD deductions, they must meet certain requirements, such as:

●    Investment in notified pension funds

Insurance Regulatory and Development Authority of India must have approved pension funds into which people have invested some of their taxable income.

●    Resident or non-resident

Both resident and non-resident individuals can seek tax deductions under Section 80CCC.

●    HUF not eligible

It is important to know that the Hindu Undivided Family (HUF) cannot get tax breaks under Section 80CCC.

●    Deduction from net taxable income

The amount claimed as a deduction under Section 80CCC is thought to have been paid for with the subscriber's net taxable income.

    Deduction limit

Lastly, the subscriber's Section 80CCC deduction shouldn't be more than his or her net taxable income.

Claim Limit of Section 80CCD

Under Section 80CCC, taxpayers can claim a deduction of up to Rs 1.5 lakh. This deduction limit is combined with Sections 80C and 80CCD, meaning that by combining all three portions, taxpayers can get the maximum deduction. This can be expressed as Rs. 1.5 lakh = 80C+80CCC+80CCD (1). The combined deduction limit of these sections may change from year to year, so taxpayers should stay up to date with the latest tax regulations.

What is the Distinction Between Section 80C and 80CCD?

Taxpayers can claim tax deductions under Sections 80C and 80CCC of the Income Tax Act, 1961. While both sections provide tax benefits, the key difference between them is that Section 80C allows deductions from non-taxable income, while Section 80CCC requires taxable income. Individuals who have invested in policies from LIC, PPF, Mediclaim, or other insurance companies can claim deductions under Section 80CCC, and receive a refund of overpaid taxes while filing income tax returns. However, Hindu undivided families are not eligible for deductions under this section. It is crucial to plan investments strategically to maximise tax benefits, as taxpayers cannot claim more deductions once they have exhausted Sections 80C, 80CCC, and 80CCD.

The Tax Process to Get Back the Invested Funds

If an individual decides to surrender their pension policy or start receiving annuity payments, any amount claimed as a deduction becomes taxable in the year they receive the funds based on their income tax slab under Section 80CCC . The money invested in the pension fund is returned to the individual as a monthly pension after a certain period. However, if the policy is surrendered, the invested amount is returned with interest. It is important to note that the annuity payments and any interest or bonuses earned on the policy are also taxable as income. Thus, individuals should consider the tax implications before making investment decisions and when planning to surrender a policy or receive annuity payments.

Relationship Between Section 10 (23AAB) and Section 80CCD

Section 10 (23AAB) and Section 80CCD of the Income Tax Act are closely related when it comes to pension funds. In order to claim deductions under Section 80CCC, the pension plan must follow the requirements set out in Section 10 (23AAB). Section 10 (23AAB) exempts income from a fund set up by a registered insurance company, like LIC, as long as the fund was set up as a pension system before August 1996 and was approved by the Insurance Regulatory and Development Authority of India (IRDAI). Under Section 80CCC, you can get a tax break for putting money into these funds, and the funds are paid out as a pension with any interest earned, which is taxed. When planning for retirement and looking for tax breaks, it's important to know how these two parts fit together.

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Frequently Asked Questions

Section 10 (23AAB) is a part of the Income Tax Act that says what pension funds must do to be eligible for Section 80CCC deductions. The eligible funds must be set up as a pension scheme by either the Life Insurance Corporation of India or any other insurer. People must put money into these funds in order to get a pension, and the Controller of Insurance, or IRDAI (Insurance Regulatory and Development Authority of India), must approve the funds.

As a non-resident Indian, if you contribute to a pension plan set up by the Life Insurance Corporation of India, you can get a deduction under Section 80CCC. However, the deduction limit of Rs. 1,50,000 is clubbed with the limits of Sections 80C and 80CCD, so the overall tax deduction limit that can be claimed is Rs. 1,50,000.

No, you can't use Section 80CCC to get tax breaks for a life insurance plan that has nothing to do with a pension plan.

To claim a tax deduction an individual must keep in mind the following conditions: The maximum deduction allowed is Rs. 1,50,000 per financial year. Payments must be made to buy or continue an annuity plan from LIC or any other insurance company. The policy should pay out pension from accumulated funds as per Section 10 (23AAB). Interests or bonuses cannot be claimed as deductions. The proceeds from the policy are taxable. The surrender value of the policy is treated as income and taxed.