Deduction under Section 80CCC
Pension Funds are one of the Post Retirement Financial Planning tools. They guarantee a fixed source of monthly income post-retirement. However, only certain designated pension plans under Section 10(23AAB) of Income-tax Act, 1961 (I-T Act) are qualified for deductions under Section 80CCC. In this article, we will learn more about section 80CCC of the I-T Act.
How do Pension Funds work?
There are two Stages of a Pension Plan-
• Accumulation Stage – The investor invests a fixed portion of income in a designated pension plan.
• Vesting Stage – The investor starts receiving the benefits after retirement.
Eligible Pension Funds for Deductions under Section 80CCC
Section 10(23AAB) of the I-T Act defines the eligibility conditions for the pension funds for the deductions under section 80CCC
a. Set up by either Life Insurance Corporation of India (LIC) or any other insurer under a pension scheme.
b. The contributions to such a fund/ scheme is made by individuals for the purpose of receiving a pension from such a fund/ scheme.
c. The said fund/ scheme is approved by the Controller of Insurance or the Insurance Regulatory and Development Authority of India (IRDAI).
Eligible Assessees for Deduction under Section 80CCC
Individuals who contribute to annuity plans of Life Insurance Corporation or any other pension fund offered by authorised insurance companies in India are eligible. These individuals are taxpayers who wish to receive a pension from a fund/ scheme. Individuals who are resident as well as non resident are allowed to claim deduction under Section 80CCC.
Amount Eligible for Deduction under Section 80CCC
• The amount paid out of taxable income to purchase or renew an annuity plan from LIC or any other insurer (on or after 1 April 2006) are eligible for deduction.
• Any interest or bonus earned under the policy is not eligible for deduction.
• Quantum of Deduction under Section 80CCC
- The maximum amount of deduction under Section 80CCC of the I-T Act is ₹ 1,50,000 or the taxable income of the Assessee, whichever is lower.
- If the contribution towards the fund is made for more than one year, then the deduction can be claimed only for the payment which relates to that relevant previous year and not all the years.
For e.g.: Mr C has earned lottery income of ₹1,00,000. He has earned interest ₹35,000 on fixed deposit. He has invested ₹25,000 in Public Provident Fund, ₹35,000 in LIC policy and ₹15,000 in a pension fund under Section 80CCC. What is the eligible amount of deduction?
In this example, while the eligible investments amount to ₹75,000 in aggregate, the total amount eligible for deduction will be restricted up to ₹35,000. No deduction is available against lottery income and the same is taxable at the flat rate of 30%.
Tax Treatment of Proceeds from the Fund?
The proceeds from pension fund is taxable in the hands of assessee or nominee of the assessee in the year of receipt as per applicable slab rates.
Amount credited to assessees annuity fund along with interest and bonus will be taxable in any of the following events:
• If the assessee withdraws by surrendering the annuity plan – In such a case the surrender value will be considered as income of the assessee and taxed in the year of receipt.
• If the assessee receives the pension from the annuity plan – in the year of receipt of the same.
It will not be wrong to conclude that these deductions not only help to reduce the taxable income during the earning years but also help in planning the retirement financially, when there is a need for stable income to match expenses which are subject to inflation.
Frequently Asked Questions (FAQs)
Are Pension Funds and Retirement programs offered by Mutual Funds eligible for Deduction under section 80CCC?
No, only pension funds specified under Section 10(23AAB) are eligible for deduction under section 80CCC.
Is Hindu Undivided Family (HUF) eligible for deduction under Section 80CCC?
No, Hindu Undivided Family is not eligible for Deduction under Section 80CCC. Only Individuals are eligible for this deduction, irrespective of their residential status.
Whether the amount invested in National Pension Scheme or Atal Pension Yojana eligible for deduction under section 80CCC?
These are not eligible for deduction under Section 80CCC however these are eligible for deduction under section 80CCD. But you should note that, the aggregate amount of deduction under Section 80C, 80CCC and Section 80CCD shall not exceed ₹1,50,000.
What is the difference between deduction under Section 80C and deduction under Section 80CCC?
Section 80CCC mandates that the amount of contribution should be paid out of taxable income. Section 80C has no such restrictions of making contributions out of taxable income.