Deduction under Income Tax under 80CCC and 80CCD

Updated: Feb 4, 2021

Deduction in respect of contribution to certain Annuity Plan and Contribution to pension scheme of Central Government.

Deduction under section 80CCC and 80CCD
Deduction in respect of contribution to certain Annuity Plan and Contribution to pension scheme of Central Government

Section 80 CCC of the Income Tax Act 1961 allows Tax Payer to claim deduction from gross taxable Income for the amount invested in certain pension funds of LIC or any other Insurer. Maximum allowable deduction under this provision is Rs.1,50,000/- per year. This investment includes both new and existing policy that pays pension or a periodical annuity.

Section 80CCC of the Income Tax Act 1961 provides tax deductions for contribution to certain pension funds. The section provides tax deduction up to a maximum of Rs.1.5 lakh per year on expenses incurred in buying a new policy or continuing an existing policy that pays pension or a periodical annuity.

Allow-ability for 80CCC
Deduction under 80CCC

Eligibility:

  1. Any Individual (Resident and Non Resident) can claim deduction under this section.

  2. HUF can not claim deduction under this section.

Points to Remember:

The plan must be for receiving pension from a fund referred to in Section 10(23AAB). Amount for policy must have been paid out of income chargeable to tax (deduction cannot exceed the taxable income).

10(23AAB): Any income of a fund set-up by the Life Insurance Corporation of India on or after August 1, 1996 or any other insurer to which contribution is made by any person for receiving pension from such fund, and which is approved by the Controller of Insurance or the Insurance Regulatory and Development Authority, is exempt from tax.

However, 

  • Accrued Interest and Bonuses from the policy are Taxable and not eligible for deduction from Income.

  • The proceeds from the policy as pension funds are liable for taxes as they will be treated as income of previous year.

  • The amount received after the surrender of annuity plan whether in whole or in part is also chargeable to tax.

  • Pension received from the annuity plan is also chargeable to tax.

80CCD: Deduction in respect of contribution to pension scheme of Central Government


Deduction under 80CCD

Part I: Contribution by Individual to Pension Fund:

Section 80CCD deduction can be availed by taxpayers who have made contributions to a pension fund like National Pension Scheme or Atal Pension Yojana.

National Pension System is a Government approved pension scheme for Indian citizens in the 18-60 age group. National Pension Scheme is managed by the Pension Fund Regulatory and Development Authority (PFRDA). The minimum yearly contribution required for the National Pension Scheme is Rs 6,000, which either can be paid in one go or in installments of at least Rs 500.

Eligibility:

Any individual (Salaried and Self employed both) including NRI, between the age 18 to 60 yearsHUF is not eligible for deduction under this section.


Maximum Deduction: In case of employment, up to 10% of the salary (Basic + DA) in the previous year can be claimed as a deduction. (Employee of Central Government as well as others)

For all other cases, 10% of the gross total income in the previous year is allowed as deduction.

In addition to claiming deduction under Section 80CCD, taxpayers can also claim a deduction of up to Rs.50,000 for contribution to National Pension Scheme. The deduction for contribution to National Pension Scheme is admissible over and above the ceiling of deduction of Rs.1.5 lakhs under section 80C, 80CCC and 80CCD.

Part II: Contribution by Employer of an Individual to Pension Fund:

Deduction is also allowed to an employee if his employer makes contribution to employee’s account in the pension scheme of Central Government. The deduction allowed here for employer’s contribution is up to 10% of the salary (Basic + DA) of the individual.

However,

  • If a taxpayer closes or opts out of the pension scheme, the whole amount received by the taxpayer would be deemed to be income of the taxpayer in the previous year and chargeable to income tax.

But if such amount received on closure or  opt out is used in previous year for purchasing an annuity plan in same year, then amount will not be treated as income, and ultimately shall not be chargeable to income. Also, if such amount received by a nominee, on death of an Individual, then the amount will not be deemed to be the income of the nominee.Further the periodic pension/annuity received from such annuity plan will be included in the taxable income in the year of receipt and taxable accordingly. So in a sense by purchasing an annuity plan one can defer the tax liability or avoid/reduce the tax if he is not expected to have significant taxable income post retirement in future.

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