The taxes collected from the citizens enables the government to improve the country’s infrastructure and provide other amenities to Indians. But the government also strives to prevent taxation from becoming a burden on the taxpayers. Thus, the Income Tax Act, 1961 (ITA) provides several exemptions and deductions to reduce the assessees’ tax liability.
Therefore, under various sections of the ITA’s Chapter VI A, you can claim such deductions for specific investments and expenditures. Among such provisions, Section 80C allows the maximum deductions of up to ₹1.5 lakhs in a financial year.
Section 80CCC is a sub-section under 80C. It not only helps reduce your tax outgo but also enables you to secure your financial stability in retirement. Hence, you need detailed knowledge of this tax benefit to save tax and ensure financial security in old age.
What are the tax benefits under Section 80CCC of the ITA?
Section 80C includes an exhaustive list of tax-saving plans. Navigating the channels for effective tax planning could be cumbersome. Thus, Section 80C was split into several subsections to provide clarity. Section 80CCC is one such subsection, defining the tax rules for buying or continuing retirement plans.
Under Section 80CCC, deposits you make into an annuity plan with a pension fund from a life insurance company are eligible for deductions from your income. You can claim a maximum deduction of ₹1.5 lakhs under Section 80CCC, in conjunction with Section 80C and 80CCD.
Thus, if you enter into a pension scheme from a life insurer, you will get a steady, lifelong income and a tax break. You can claim the deduction not only when you purchase a new policy but also every year you pay your renewal premium.
What is the significance of Section 10 (23AAB) concerning Section 80CCC?
Only those pension funds that are specified under Section 10 (23AAB) are eligible for the Section 80CCC tax benefit. The current tax laws permit such deductions for contributions towards annuity plans of the Life Insurance Corporation (LIC) or other pension funds held under insurance companies registered with the Insurance Regulatory and Development Authority of India.
Therefore, a mutual fund company’s retirement scheme is not eligible for tax relief under Section 80CCC.
What is the tax treatment of the income earned from an annuity plan?
The pension you receive from the annuity plan or the amount you get on surrendering the policy, in part or in full, is deemed an income. You have to pay tax on the amount as per your applicable tax slab. Bonuses declared, if any, or interest generated on the sum you invested in this plan, are also taxable.
However, for a deferred pension plan, you can withdraw 1/3rd of the accumulated funds at the end of the deferment period, without having to pay taxes. Such tax-free pension commutation is permissible under Section 10 (10A) of the ITA.
Moreover, you can make arrangements for your nominee to continue receiving the income in your absence. In this case, it will be treated as your nominee’s income and will be taxable.
What are the terms and conditions that apply to Section 80CCC deductions?
- The most critical condition for claiming this deduction is that the pension plan must pay out a periodical annuity or income from accumulated funds.
- The tax benefit is on the premium paid to buy or renew specific life insurance annuity plans mentioned in the guidelines under Section 10 (23AB).
- You must make the payments for the annuity plan from the taxable portion of your income.
- You can claim the deduction only for the financial year in which you contributed towards the plan. If you pay a one-time premium, you can apply for the tax break on the year when you made the lump-sum payment. You cannot get the tax benefit in the subsequent years during which the plan is in force.
- If you opt for a regular premium payment plan, you can claim the deduction for each year you pay the premium
What are the salient features of Section 80CCC?
- The pension amount, any bonuses received, and interest accrued on the annuity are taxable as income from ‘Salaries’.
- If you surrender the policy, the amount you get as surrender value is taxable, as are the payouts, as per your tax slab.
- Any bonuses you might receive or interest your investment earns are not tax-exempt.
- The deduction cannot be more than your taxable income.
- Under Section 80CCC, you cannot claim the rebates that were available for investing in an annuity scheme before April 2006.
- Payments you make for other pension schemes such as the National Pension System or Atal Pension Yojna do not qualify for Section 80CCC deductions.
However, you can avail of deductions under Section 80CCD for such contributions.
- Section 80CCC is a part of the broader Section 80C. Therefore, the tax benefit is subject to the cumulative threshold of ₹1.5 lakhs applicable to the aggregate of investments/ expenses under Section 80C, 80CCD, and 80CCC.
Who is eligible for the tax deductions under Section 80CCC?
Only individual taxpayers paying an amount to buy or continue a pension-providing annuity plan from an insurance company can take advantage of this deduction. The benefit is not available for a Hindu Undivided Family (HUF).
Moreover, companies, sole proprietorships, partnerships, companies, and associations are also not eligible for 80CCC benefits. Are only Indian citizens eligible for tax deductions under Section 80CCC?
The 80CCC deductions are not limited only to resident Indians. Non-resident Indians contributing towards the eligible pension plans and subject to taxes in India can apply for this deduction.
How to claim deductions under Section 80CCC?
You may have invested in sanctioned annuity plans but paid excess taxes without applying the relevant deduction on your taxable income. In that case, you can claim the deduction when you file your Income Tax Return(ITR). Mention the amount you paid for the policy under the Section 80CCC deductions in your ITR form. The tax department will refund the extra amount you paid to your bank account.
What is the difference between Section 80C and Section 80CCC?
The key differences between these two sections under the ITA are presented in the following table:
| Section 80C |
Section 80CCC |
| You must pay the premium for the annuity scheme out of the taxable portion of your net income. |
The funds for eligible investments or expenses may come from income not chargeable to tax, i.e., exempted income. |
| You can claim deductions for investments in any type of life insurance policy, apart from other tax-saving instruments. |
Only contributions towards pension funds from life insurance providers are counted. |
Is the maximum 80CCC deduction a standalone limit?
The 80CCC deduction is clubbed under the Section 80C deductions. Thus, the upper limit of 80CCC deduction is capped at ₹1.5 lakhs. But it is not the standalone limit specific for 80CCC. Contributions you make towards other tax-saving tools under Section 80C will also count under this limit. The total deduction under Section 80C, 80CCC, and 80CCD cannot be more than this amount.
For example, suppose you contribute ₹1,00,000 in a financial year towards a life insurance annuity plan.
You also invest a sum of ₹50,000 in the PPF and ₹75,000 in the NPS that same year.
Your total investment is ₹ (1,00,000 + 50,000 + 75,000) = ₹2,25,000 or ₹2.25 lakhs.
But the total tax deduction you can get for these investments is ₹1.5 lakhs, as an aggregate of benefits under
- Section 80C for PPF
- Section 80CCC for the annuity scheme
- Section 80CCD for NPS
Can I claim deductions under both Sections 80C and 80CCC?
Along with annuity scheme deposits, you can get a tax break for investments and expenses eligible for deductions under Section 80C, such as:
- Home loan principal repayment
- PPF
- EPF
- NPS
- ELSS
- NSC
- ULIP
- Term insurance
- Guaranteed-income life insurance products
- Health insurance
You can claim deductions up to ₹1.5 lakhs for your total contribution towards all such investments and expenses.
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- Guaranteed additions to your invested sum
- Chances to earn bonuses
- Assured benefit up to the income start date, or an unwanted event during the deferment period
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- Immediate annuity payments after purchase
- Several income options, including lifetime income with money-back and income for surviving spouse after an eventuality
Conclusion
Investments in retirement plans and other life insurance products can help you save a considerable sum in taxes. You can visit the Kotak Life website to understand how you can meet your investment and tax-planning goals and safeguard your loved ones from life’s uncertainties with life insurance.
