When it comes to saving on your Income Tax, there are lots of options available to taxpayers. Every taxpaying citizen is looking for ways on how they can reduce their taxable income. One of the many ways to reduce your taxable income is by claiming deductions from the various sections of the Income Tax Act. Apart from investments made under Section 80C, Section 80CCC is one such section under which you can claim tax deductions on the investments made in pension funds. This is also one of the most popular and rewarding investment options as you not only get high returns but can also build a nest-egg for your retirement. And under Section 80CCC, all payments made towards pension funds, whether it’s buying a new policy or renewing your existing one, can be claimed for tax deductions.
What is Section 80CCC?
Under the Income Tax Act of 1961, Section 80CCC allows individuals to claim tax deductions on payments made towards pension funds. From buying a new policy to renewing an existing one, any payment you make towards such a fund can be claimed for tax deductions under Section 80CCC. If you’re considering investing in pension funds to claim Section 80CCC deduction, it’s essential to know that the final pension amount you receive as well as the interest and bonuses are taxable and hence cannot be claimed as tax deductions
The maximum tax deduction that you can claim under Section 80CCC is Rs. 1.5 Lakhs. This amount is, however, clubbed with Section 80C and Section 80CCD.
Who is eligible for deductions under Section 80CCC?
- Individual taxpayers who have subscribed to an annual pension plan offered by approved insurance companies
- HUF or Hindu Undivided Families are not eligible for Section 80CCC deduction
- The above provisions apply to both Indian residents and NRIs
- According to Section 10 (23AAb), the amount to obtain the pension has to be paid from a particular fund.
You can only claim deductions for the year for which you paid the amount for the pension. For example, if you made a one-time payment for 2020, you can claim tax deductions under Section 80CCC for that year only. The pension covers other years too, but you cannot claim that as deductions. However, you can claim Section 80CCC deduction for the annual premium payments you make every year towards the pension fund.
Resident Indians, as well as NRIs, can claim tax deductions under Section 80CCC. However, Hindu Undivided Families (HUFs) are not eligible to claim tax deductions under this section.
What is Section 10 (23AAB)?
Section 10 (23AAB) is linked to Section 80CCC, so before you choose to claim deductions in Section 80CCC, it is crucial to understand what Section 10 (23AAB) is and how it can affect you. Section 10 (23AAB) states that individuals who contribute towards policy or payment to renew the plan on or after 1st August 1996, can claim tax deductions under this act. This act also requires that the policy provider must be approved by IRDAI (Insurance and Development Authority of India). All contributions towards this policy must be made to receive pension amount in the future. To be eligible to claim section 80CCC deductions, you must meet all of the above criteria.
Key features you must know about Section 80CCC deduction
- Section 80CCC deduction can only be claimed if you have made some payment towards purchase or renewal of pension plan
- The payment of the pension fund must happen from the accumulated funds as per Section 10 (23AAB) of the Income Tax Act
- The maximum deductions you can claim under Section 80CCC is Rs. 1,50,000. However, this is a cumulative amount which also includes deductions from Section 80C and Section 80CCD
- In case you surrender the policy, the amount you receive upon surrender will be taxable
- The bonuses and interests you receive from the policy are not exempt from tax, and therefore, you’ll be unable to claim deductions on those.
- Whatever amounts that you’ve deposited towards this policy before April 2006 are not eligible for deductions under Section 80CCC
- Section 80CCC deduction applies to policy obtained from private as well as public insurers
- The pension amount you receive eventually is liable to tax and will not be eligible for Section 80CCC deduction
By making the most of the provisions under Section 80CCC of the Income Tax Act, 1961, you can reduce your tax liability considerably. If you want to avail Section 80CCC deduction, it is necessary to invest and maintain a record of all the payments you’ve made towards this fund. Combining Section 80CCC deduction along with provisions of other sections under the Income Tax Act, your taxable income can be reduced a great deal.