Section 80CCC provides tax deductions on buying a new policy or continuing a policy that pays pension with deductions going up to Rs.1 lakh per year on any expenses incurred in buying or maintaining the policy.
The Section 80CCC deals with tax deductions on annuity plans from the Life Insurance Corporation of India (LIC) and other insurers. The section provides for tax deductions up to a maximum of Rs.1 lakh per year on expenses incurred in buying a new policy or continuing an existing policy that pays pension. The scheme works in conjunction with Section 80C and Section 80CCD to give an overall tax deduction limit of Rs.1.5 lakhs per year.
Terms of Section 80CCC
- Applicable for taxpayers who have deposited some amount out of their taxable income to buy or continue an annuity plan from LIC or any other insurer.
- The policy should pay pension from the accumulated funds as per the terms of Section 10 (23AAB).
- Interests or bonuses accrued from the policy are not eligible to be claimed as tax deductions.
- Maximum allowable limit for deductions is Rs.1 lakh in a fiscal year. This limit is set to be increased to Rs.1.5 lakhs from FY 2016-17, i.e. from 1st April 2016 onwards.
- The proceeds from the policy as pension funds are liable for taxes as they will be treated as income of previous year. This includes accrued interests and bonuses, if any.
- Surrender value of the annuity plan in part or in whole will also be treated as income and taxed accordingly.
- Rebates on investments in annuity plans made before 1st April 2006 are not allowed under Section 88.
- Deductions are also not applicable on amounts deposited before 1st April 2006 under Section 80C.
Section 10 (23AAB)
The Section 10 (23AAB) is inherently linked with benefits under Section 80CCC. Section 23AAB includes income of a fund set up by the LIC or any other insurer on or after 1st August 1996 under a pension scheme. The taxpayer should have made contributions to the fund/policy with the express intention of earning pensions in future.
Points to Note
- The tax deductions under Section 80CCC are clubbed together with that of Section 80C and sub section (1) of Section 80CCD for an overall deduction limit of Rs.1.5 lakhs per year.
- The individual limit of deductions that can be claimed u/s 80CCC is Rs.1 lakh per year. This limit has been proposed to be increased to Rs.1.5 lakhs from FY 2016-17 onwards.
- Section 80CCC deals explicitly in annuity or pension plans offered by various public and private sector insurers in the country.
- Deductions are applicable on amounts paid for the preceding year only. If contributions to a pension fund are made for two or more years together, then only the preceding year’s contributions can be claimed as deductions and not the years before that.
Eligibility for Claiming Deductions u/s 80CCC
Any individual taxpayer who has invested in an annuity plan offered by an insurer can claim the deductions under this section. Hindu Unified Families (HUF) cannot claim the benefits of this section. Also, both resident and non-resident individuals can claim the deductions u/s Section 80CCC.
FAQ's on Section 80CCC
- I have a life insurance policy not related to pension schemes. Can I claim benefits u/s 80CCC?
- Are the proceeds from annuity plans tax-free?
- I am a non-resident Indian. Can I claim the deductions?
- Can I claim deductions under both Sections 80C and 80CCC?
A general life insurance policy cannot be used to claim deductions under this section. However, you can still claim deductions on the premiums paid under Section 80C.
No, the interests earned from an annuity plan will be treated as income when they are released and income tax will apply as per respective slabs.
Yes, non-residents can claim benefits u/s 80CCC.
The deductions u/s 80CCC are a part of the overall deductions u/s 80C. Deductions claimed under 80CCC is limited to Rs.1 lakh per year, while the deductions under 80C is limited to Rs.1.5 lakhs per year. 80CCC is a subset of 80C and so the overall deductions cannot exceed Rs.1.5 lakhs.