Section 80CCC – Deduction for contribution to pension funds

Section 80CCC - Deduction for contribution to pension funds
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Section 80CCC – Deduction for contribution to pension funds

Overview

Considering ever going inflation, it is important to plan for the future cautiously. Pensions are different from savings, savings can run out but pension plans will continue no matter how long you live. A fixed source of monthly income post-retirement i.e pension plan can be considered as a backbone/pillar that will support when all the other sources of income and savings cease to exist.  There are two stages in a pension plan, when one invests a fixed portion of income in a designated pension plan it is called an accumulation stage; and when one starts receiving the benefits after retirement it is called the vesting stage. Apart from its future benefits, pension plans are always lucrative as it provides for the income tax deduction in the year of investment in the scheme. To put in simple words, section 80CCC talks about the deduction that an individual can claim for the contribution to certain pension funds. Let’s understood in detail about it.

Know all about national pension funds
What is section 80CCC of Income-tax At, 1961?

As per section 80CCC, an individual assessee is allowed to claim the deduction, if the contribution is made to designated pension funds referred u/s 10(23AAB) out of taxable income.

  • It can only be claimed for the contribution made towards the annuity plan of LIC of India for receiving the pension from the fund referred in section 10(23AAB).
  • It can be claimed for cost incurred to buy a new policy or for the continuation of an existing policy that pays pension from the accumulated funds as per section 10(223AAB).
Which funds are referred to under section 10(23AAB)?

 Following are the funds which are referred to u/s 10(23AAB) 

  • A fund set up by the Life Insurance Corporation of India on or after the 1st day of August 1996 or
  • Any other insurer/insurance company under a pension scheme which is approved by the Controller of Insurance or the Insurance Regulatory and Development Authority established u/s 3(1) of the IRDA Act, 1999.
Who are eligible to claim deduction u/s 80CCC?

Deduction in respect of contribution towards the pension funds u/s 80CCC can be claimed only by the individual taxpayers whether a resident or non-resident. Even HUF cannot avail the benefit of tax deduction u/s 80CCC.

What is the maximum amount of deduction allowed as per section 80CCC?

The maximum amount of deduction is Rs. 1,50,000/- BUT it has to be clubbed with section 80C and section 80CCD, so it means that the overall limit is Rs. 1,50,000/-.

Note: Deduction in respect of contribution is allowed only for the amount which relates to the previous year. For example, if contribution towards the fund is made for more than one year in one-go then the deduction can be claimed only for payment which relates to that preceding year (and not all the years).

Will the proceeds from pension plans be eligible for the tax deduction?

No, the proceeds from pension plans won’t be eligible for tax deduction.

It will be taxable in the hands of the assessee or assessee’s nominee in the year of receipt.

Any amount which is credited to the assessee’s annuity fund account along with interest and bonus will be taxable in the year of receipt for any of the following reasons

  • If the assessee withdraws by surrendering the annuity plan or
  • If the assessee receives the pension from the annuity plan.

Note: If assessee surrenders the investment in the pension fund, the surrender value whether received in part or in whole, will be considered as income in the year of receipt and taxed accordingly.


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About CA Ankita Khetan 166 Articles
Ankita is a Chartered Accountant in practice and holds a Diploma in IFRS (from ACCA, UK). She is also a Commerce PG and Certified Independent Director (from IICA). She holds a certification in Forex and Treasury Management. Her area of expertise is GST and Income tax. She is passionate about reading, writing, and sharing knowledge on areas related to finance and taxation.

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