80CCC: What is Deduction under Section 80CCC?

Section 80CCC of the Income Tax Act 1961 offers tax deductions up to Rs 1.5 Lakhs per year for contributions made by a person towards certain pension funds offered by a life insurance policy. The 80CCC deduction is within the limit of section 80C.

So, to avail of this deduction, you must buy a life insurance policy or renew a policy that will offer you a pension.

Terms and Conditions of Section 80CCC

Deduction under section 80CCC of the Income Tax Act is available to taxpayers who meet the following conditions:

a) A maximum deduction of Rs 1.5 lakhs is allowed
b) The assessee (taxpayer) has to be an individual for the deduction
c) The amount has been paid out of your (taxpayer) taxable income
d) You have invested the amount in a pension plan from one of the life insurance companies
e) The amount you will receive as a pension from such pension deposits will become part of your taxable income
f) The amount you receive from such a policy for which you had availed a deduction under section 80CCC, after the surrender of the policy will be a part of your taxable income
g) Investments before April 2006:

Rebate under section 88 is not available before the FY ending on 1st April 2006
The deduction is not available under section 80C for any assessment year beginning 1st April 2006

Who is Eligible to Claim a Deduction under Section 80CCC?

You can claim a deduction under section 80CCC if you meet the following conditions:

a) You are filing your ITR as an individual taxpayer
b) You have invested in a pension plan from an approved insurance provider
c) The deduction is available to both resident and non-resident taxpayers
d) Deduction under section 80CCC is not available to HUF

How much can you Claim under Section 80CCC?

a) You can claim a maximum deduction of up to Rs 1.5 lakh under section 80CCC.
b) The deduction limit of section 80CCC is included with 80C and 80CCD. That is, you can avail of the maximum deduction by clubbing all the 3 sections.
c) 1.5 lakhs = 80C+80CCC+80CCD(1)

When can you not Claim a Deduction under Section 80CCC?

a) If you receive any amount on surrender of the policy, then this amount will be subject to tax based on the previous year.
b) If you have received any interest or accrued any bonus from the policy, then you cannot avail of a deduction of this amount. The deduction will be allowed, excluding these bonuses.
c) If you have made deposits before 2006 then you cannot avail of the deduction.

What is Section 10 (23AAB)?

Clause 23AAB under section 10 defines the eligibility conditions for the pension funds for the deduction under section 80CCC of the Income Tax Act. As per this clause, the eligible funds will have to be:

a) Setup by either Life Insurance Corporation of India or any other insurer as a pension scheme
b) The contributions to these funds will be made by individuals to receive a pension
c) Approved by the Controller of Insurance or IRDAI (Insurance Regulatory & Development Authority of India)

Important Points Related to 80CCC Deduction

These are the salient points about deduction under Section 80CCC of the Indian Income Tax Act:

a) The deduction is available to individual taxpayers only who wish to receive a pension from the fund or scheme
b) The funds which receive the invested money must be a part of a pension scheme from an approved life insurance provider
c) The maximum deduction you can avail of will be limited to the amount provided in the section (Rs 1.5 Lakh w.e.f. FY 2016-17)
d) The pension amount you receive from the policy will be taxable
e) If you surrender the policy the surrender money received will become a part of your taxable income for the FY

FAQ

Income tax in India is based on incremental slab rates. The rate of tax is higher on higher income. You can also avail deductions from your taxable income if you invest in eligible instruments like PPF, NPS, ELSS, ULIPs, etc. Starting AY 2020-21 you have two tax regimes – old and new. The old tax regime has all the deductions from gross total income, while the new tax regime offers a lower rate of tax. So, if you are not investing in tax-saving instruments you can file your tax as per the new tax regime.

You can avail additional tax savings under the following sections other than section 80C:

a) Section 80D: Health insurance premium payments for family and parents up to Rs 75,000
b) Section 80CCD(1B): Self-contribution to NPS Tier-I account above 10% of salary or 20% of income if self-employed up to Rs 50,000
c) Section 80E: Education loan interest paid through the year
d) Section 80EE: Home loan interest paid up to Rs 50,000
e) Section 80G: Charitable contributions to non-profit organisations registered under section 12A up to 50% or 100% of the contribution
f) Section 24B: Interest paid on home loan

You have many tax-saving investment options. You can consider the following popular tax-saving schemes to save tax:

a) Term life insurance plan
b) Health and critical illness insurance plan
c) Life insurance plans such as endowment and moneyback plans
d) Pension plans from life insurance companies
e) Public Provident Fund (PPF)
f) National Pension System Tier-I account (NPS)
g) Employee Provident Fund (EPF)
h) Unit Linked Insurance Plans (ULIPs)
i) Equity Linked Savings Scheme (ELSS)
j) Senior Citizen Savings Scheme
k) Sukanya Samriddhi Yojana
l) 5-Year Tax Saving Fixed Deposits
m) National Savings Certificate (NSC)

Deduction of Rs 1.5 or 2 Lakhs under section 80C is available when you make investments or spend money under the heads mentioned in the Chapter VI A of the Income Tax Act, 1961. All tax-saving investments like PPF, NPS, ULIP, ELSS, etc. and all tax-saving expenses like children’s tuition fees, and registration expenses of a house property are part of Chapter VI A.

You will need to pay taxes on the incomes and gains from your investments. For example, your salary income is Rs 10 lakhs in a year, out of which Rs 7.5 lakhs becomes taxable after deducting exempt perquisites. Out of your income of Rs 10 lakhs, you invest Rs 3 lakhs in various options.

Even if none of your investments is eligible for tax saving under section 80C, your taxable income will remain Rs 7.5 lakhs. However, returns from some of these investments will become taxable in the next financial year when you receive them.

Since AY 2020-21 you have two ways to lower your income tax outflow on higher income – tax-saving investments and a new tax regime. You can stick to the old tax regime and invest your savings into eligible tax saving options. Tax-saving investments can give you a deduction of up to Rs 2 lakhs under sections 80C and 80CCD(1B), and additional deductions of up to Rs 2 lakhs under section 24.

Your deductions will be higher with other sections like 80E and 80G. But these are specific outflows which are not investments.

The best way to reduce your tax outflow legally is to use tax-saving investments and plan your future taxes carefully. Tax-saving investments will help you reduce your taxable income in the present financial year. If you invest in options which enjoy tax exemptions on maturity values, you can also reduce your future tax outflow. For example, Invest 4G ULIP from Canara HSBC Life Insurance allows you to stay invested up to the age of 99. This means that you can start investing at 30, build a corpus by 60 and have a tax-free lifetime pension.

Usually, a receipt is a convenient document to produce while claiming your deductions for expenses. However, the following alternatives are available if you lose the receipt:

a) Avail fuel or petrol expenses with number of kilometres
b) Credit card statement for computer items
c) Credit/debit card statement for stationery items
d) Membership documents to show running membership to claim the fees amount

You can claim HRA exemption with your employer and declare the amount in your ITR-1 form while filing your tax return. You will need to submit your house rent receipts with your employer to reduce your TDS. Use the online calculator to estimate your HRA exemption and claim the amount directly in your ITR.

If you are self-employed or do not receive HRA from your employer but have been paying rent for residence, you can claim a deduction of up to Rs 60,000 under section 80GG.

You can calculate your HRA exemption based on the following conditions. The amount of exempt HRA will be the lowest of the three:

a) HRA you have received
b) 50% of salary (basic + DA + Commission paid as % of turnover) if you are staying in a metro city otherwise 40%
c) Rent paid over 10% of your salary (as defined in step 2)

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