Section 80CCC Deduction
To enable taxpaying individuals to claim deductions on income tax when money is spent in the purchase of a new policy or renewing existing policies, provisions have been put into place in Section 80CCC of the Indian Income Tax Act, 1961.
According to Section 80C of the Indian Income Tax Act, an individual taxpayer or Hindu Undivided Family can claim various deductions on their total income. Its allied section, Section 80CCC, helps reduce the taxable income, thereby allowing the individual to pay lesser tax on the total income. Section 80C allows an individual to claim exemptions for payments made towards PPF, Mediclaim, Mutual Funds, etc. on a broad basis whereas, Section 80CCC refers specifically to insurance policies and specific pension funds as specified in Section 10 (23AAB).
Under current rules, tax deductions are only allowed for individuals who make contributions towards an annuity plan for life insurance, including Life Insurance Corporation of India or other pension funds as specified. Thus, pension funds or retirement schemes offered by mutual fund companies do not offer any tax benefits in Section 80CCC. However, the National Pension System or NPS allows a deduction under a separate section of the Indian Income Tax Act, which is Section 80CCD.
What is Section 80CCC?
Section 80CCC of the Indian Income Tax Act refers to the premium that is paid towards any life insurance policy or pension fund as specified by Section 10 (23AAB), with a maximum limit of Rs 1.5 Lakh and is applicable for tax exemption and can be claimed as a deduction from the total income. Section 80CCC allows taxpayers to claim deductions made towards payments or credits for the purchase of annual Life Insurance Corporation of India (LIC) plans, pension funds, or other life insurance companies. To benefit from this, taxpayers must make payments to obtain pensions from an endowment, which is mentioned in Section 10 (23AAB). Nevertheless, any proceeds from a policy, whether it is a bonus or interest accrued, is taxable for the year it was received.
Eligibility Criteria to Claim Deductions in Section 80CCC
To claim tax deductions in Section 80CCC, one can either be a resident individual or non-resident but must contribute towards an annuity plan. If an individual has paid any total for continuing the annual plan of an insurance provider to receive an annuity, an individual can claim a tax deduction for the total paid from the gross income. Individual taxpayers and not HUFs can only demand tax welfares.
Tax deductions in Section 80CCC can only be requested for the financial year in which taxpayers have remunerated the amount. For example, if a person makes a lump-sum payment towards a life insurance policy, a maximum of Rs 1.5 Lakh can be claimed as a tax deduction for that particular year and not for the outstanding years when the person continues to enjoy the coverage from the policy. However, if a taxpayer opts to make consistent annual reimbursements, then the exemption can be claimed yearly when filing Income Tax returns.
Conditions to be Eligible for Section 80CCC
- This applies to taxpayers who have credited a certain amount towards continuing an annual life insurance plan from Life Insurance Corporation of India or other insurers
- The policy should pay annuity from the accrued fund as per Section 10
- Interests or bonus accumulated from the policy cannot be considered and claimed as tax deductions and are taxable for the year they are claimed
- The maximum amount that can be claimed as a deduction in a financial year is Rs 1.5 Lakh
- Any surrender value of an endowment plan in portions or as a complete payment will be considered as revenue and be liable or tax accordingly
- Rebates on investments made towards pension plans are not allowed in Section 88 of the Indian Income Tax Act
- Contributions made towards a policy must come from an individual’s income that is liable to be taxed
- One can benefit from tax deductions for the previous year only in case an individual makes a one-time contribution towards a policy, he or she is due deductions for the year in which the contribution was made
- There are some important points to note in Section 80CCC:
- Tax deductions in Section 80CCC are joined together with other subsections of Section 80C to allow for an overall deduction limit of Rs 1.5 Lakh per year
- Section 80CCC deals with annuity plans offered by various public and private insurers in the country
- Any amount that has been deposited before 1st April 2006 is not eligible for deduction
What is Section 10 (23AAB)?
The provisions made in Section 10 (23AAB) are directly linked to Section 80CCC of the Indian Income Tax Act. It relates to any income that is earned from a fund set up by a recognized insurance provider, including Life Insurance Corporation of India. According to this section, the fund must have been set up before August 1996 as a pension scheme. Any contributions made by individual taxpayers towards the policy must have been done so to receive an annuity in the future.
Additional information and features
- One of the most important differences between sections 80C and 80CCC of Income Tax Act 1961 is that in Section 80C, tax deductions can be claimed even if the amount that is to be paid does not come from an individual’s taxable income Whereas in Section 80CCC, it is explicitly mentioned that the amount contributed towards a life insurance policy must come from an individual’s taxable income
- Individuals who may have paid excess taxes but have invested in policies from Life Insurance Corporation of India, Public Pension Fund, Mediclaim, etc., may claim these deductions under the Section and receive a refund for the excess amount paid while filing Income Tax returns
- Residents and Non-residents of India are eligible for claiming deductions in Section 80CCC. But, Hindu Undivided Families are not eligible under this section
- An individual may not claim any further deductions after reaching the limit of Rs 1.5 Lakh towards Section 80C, Section 80CCC and Section 80CCD
- To avail tax exemptions in Section 80CCC, an individual should keep a check on the amounts to be paid towards an insurance policy. The exemption limit should not go beyond their income
Q: Are tax benefits available for contributions made to National Pension Fund/Atal Pension Yojna covered in Section 80CCC?Ans: No. An individual cannot claim for a deduction in Section 80CCC for contributions made towards National Pension Fund/Atal Pension Yojna. Such contributions are eligible for a deduction of tax in Section 80CCD of the Indian Income Tax Act, 1961.
Q: Does the tax exemption limit of Rs 1.5 Lakh mean that the taxpayer could invest in more than 1 instrument & claim deductions of Rs 1.5 Lakh for each?Ans: No. The limit of Rs 1.5 Lakh is eligible for a deduction of tax, keeping in mind the cumulative investments made by the individual in Section 80C of the Indian Income Tax Act, 1961.
Q: I have a life insurance policy that is not related to pension fund schemes. Can I still claim a deduction in Section 80CCC?Ans: No. A general life insurance policy that is not related to pension funds cannot be claimed as an exemption under this Section. However, there are other sub-sections in Section 80C of the Indian Income Tax Act that can allow one to claim deductions.
Ans: The pension fund is an instrument of investment that provides income for retirement. Section 80CCC of the Indian Income Tax Act, 1961, provides certain exemptions and allows claiming deductions for contributions made towards a retirement fund such as a pension fund. To claim benefits, an individual must make contributions to receive a pension from a fund as specified by Section 10 (23AAB). The maximum limit for exemption allowed under this section is Rs 1.5 Lakh.
Q: I have paid the premium for my life insurance policy in one go. Can I claim a deduction in Section 80CCC for it every year?Ans: No. The rules for Section 80CCC are apparent that only contributions made in a financial year can be claimed as deductions that year. If an individual has paid the entire premium in one go, then the individual can only claim a tax benefit of up to Rs 1.5 Lakh for that particular year when filing his or her Income Tax returns.
Ans: The main difference between Section 80C and Section 80CCC is that Section 80C allows contributions made towards pension plans and policies to come from income that is not chargeable for tax. Whereas to claim a deduction in Section 80CCC, any contributions made towards pension funds and insurance policies must come from taxable income. Additionally, Section 80C is a broader section where deductions can be claimed for multiple investment instruments, whereas Section 80CCC one can claim deductions only towards pension funds or annuity funds.
Ans: Yes. Non-resident Indians are allowed to claim deductions in Section 80CCC provided all the terms and conditions are met as per the Income Tax Act, 1961.