Individuals can deduct certain expenses from their gross income under the IT Act of 1961. These deductions and exemptions assist taxpayers in lowering their taxable income, which reduces their tax bill. Therefore, taxpayers try to take advantage of as many exemptions and deductions as possible to minimise their taxable income.
When people discuss deductions, Chapter VI A of the IT Act, 1961, is a subject that receives much attention. The sections under which you can deduct your taxable income are all listed in this chapter. These deductions are permitted for legitimate costs you pay for and investments you make during a specific fiscal year.
A deduction is permitted if you contribute to a life insurance pension plan under Chapter VI A of Section 80CCC. To be eligible to claim a deduction, you must meet several requirements that are listed in this section.
What is Section 80CCC Deduction?
By Section 80CCC of Income Tax Act, taxpayers who receive pension income may deduct certain expenses when determining their taxable income. For an Indian taxpayer, the main benefit of claiming tax deductions is that it will lower their taxable income and subsequent tax payment. On April 1st, 1997, Section 80CCC became operative.
The clause allows for tax deductions for contributions made to specific pension funds. A maximum deduction of INR 1.5 Lakhs will be allowed each year under this section for costs associated with purchasing new insurance that pays a pension or a periodic annuity or renewing an existing policy. This section is accessible in addition to the deduction allowed under other sections, like Section 80C and 80CCD (1).
As a result, taxpayers may only deduct INR 1.5 Lakhs from their taxes under all three Sections (80C, 80CCC, and 80CCD). This post briefly overviews the significant tax deductions under Section 80CCC of the Act.
Eligibility for Section 80CCC Deductions
Any person may take advantage of these deductions under this clause, but Hindu Unified Families are prohibited. The Income Tax Department states that subject to the notified requirements, an individual taxpayer is qualified to claim these tax deductions for contributions to certain pension funds of the LIC or any other insurance institutions for up to INR 1, 50,000.
Furthermore, even if the assessor is a senior citizen, the total deduction under Sections 80CCC, 80C, and 80CCD cannot exceed INR 1,50,000, according to the Central Board of Direct Taxes (CBDT).
Important Things about 80CCC of Income Tax Act
- The plan must include receiving a pension from one of the Section 10 funds (23AAB). The sum required for the policy must be paid from taxable income. The deduction cannot be greater than the taxable income; it should be mentioned.
- Tax deductions cannot be made for any bonuses or interest received due to the policy.
- As a pension fund, the earnings from this policy are subject to taxation because they are regarded as prior-year income. Any incentives or interest, if any, would also be included in this.
- The proceeds received upon the pension plan’s surrender, whether in whole or part, are likewise subject to tax.
- Taxes must also be paid on a pension received under the allowance plan.
Terms and Conditions under Section 80CCC
Please bear in mind the following guidelines while claiming Section 80CCC deductions:
- The premium should cover either purchasing a new pension policy or renewing an existing one.
- The provisions outlined in Section 10 must be followed to pay the pension policy’s accrued money (23AAB)
- The interest or bonus earned by the pension policy cannot be deducted if it is delivered to the taxpayers along with annuity payments. The individual must pay taxes on any such interest or bonus.
- In the eyes of the individual, the pension distribution is seen as income and subject to taxation.
- If the person surrenders the pension scheme, the money they get from the surrender is taxable in their own right.
- Any rebate provided under Section 88 on investments made in annuity plans before April 2006 is no longer permitted.
- The sum will only be deductible if the person invests money into a pension policy before April 2006.
Difference between Section 80C and Section 80CCC
The main dissimilarity between Section 80C & Section 80CCC of the Income Tax Act of 1961 is that Section 80C allows the payment amount to come from non-taxable income. While under the 80CCC Section, the money must be used to pay out the chargeable income.
People who paid taxes in excess but capitalised other investment ventures can use this section to get these deductions and, while filing tax returns, receive a refund for the overpaid taxes.
The non-resident Indians and Indians residing in the country can claim the deductions allowed by Section 80CCC. Hindu Undivided Families, however, are never qualified for reductions.
Taxation of Proceeds from Maturity
Once the pension plan or annuity reaches maturity, an aggregate sum is usually paid to the policyholder following Section 80CCC of the Income Tax Act. Following this, regular recurrent payments for a set time or life are shared. These revenues are subject to taxation based on the applicable income tax bracket.
Additionally, if you qualify for the benefit and decide to surrender your coverage prematurely, the insurance provider will pay a surrender value. Typically, this amount is determined as a percentage of the premium paid from the purchase time until surrendering. The received proceeds are subject to taxation as per the provisions of the IT Act.