Section 80CCC — Deduction Rules & Pension Scheme Overview

07 Feb 2021|

1 min read |

by ICICI Securities Team

Most people in the private sector don’t get pensions, so they have to do their own retirement planning. If you’re one of those unwilling to work out the investments required to ensure an adequate income post-retirement, your option would be to get into a pension fund. The icing on the cake is that you get tax benefits by investing in such funds.

Most of the Pension plans have two phases: Accumulation phase and Income phase. In the Accumulation Phase, you will pay the premium at regular intervals to the plan provider. When the Income Phase begins, you will be able to withdraw 1/3^rd of the money saved, while the remaining amount will be used to purchase an annuity product, which will create a source of regular income for the rest of your life.

Section 80CCC of the Income Tax Act 1961 allows you to claim tax deductions against investments in pension funds, including the cost of a new policy, or renewal of an existing pension policy, up to a maximum of Rs. 1.5 lakh per annum. To qualify for this deduction, the policy must be a pension or annuity based one. The pension amount received from such policy is taxable.

Features of Section 80CCC deduction

Contributions towards the policy must have been made with the intention to earn a pension post retirement.

The pension must be from a particular fund, under Section 10 (23AAB). This includes annuity plans of the Life Insurance Corporation of India, or any other pension scheme recognised and approved by the Insurance Regulatory Development Authority of India (IRDA).

It is important to note that you can claim deductions only for the year you paid for the pension. In other words, if you have made a one-time payment, you can claim tax deductions only for that particular year, and not for the tenure of the plan. However, if you are paying premiums on a regular basis, such as annual payments, you can claim tax deductions every year.

The pension you get is considered taxable income and subject to income tax.

If you surrender the policy, the surrender value is taxable at source.

A Hindu Undivided Family (HUF) is not eligible for exemption under Section 80CCC.

The deduction limits available under Section 80CCC along with Section 80C and Section 80CCD (1) cannot exceed Rs. 2 lakh (Rs. 1.5 lakh under 80C, and another Rs. 50,000 under Section 80CCD(1b), which is for investments in either the National Pension Scheme or the Atal Pension Yojana).

The provisions of Section 80CCC thus allow you claim a significant tax rebate if you invest in a pension or annuity plan, which are by nature long term and have strict lock-in periods. Click here to open a trading account with ICICIdirect and invest in NPS or a variety of other instruments.

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