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What is Section 80CCC Of Income Tax Act

04 Dec 2023

The Income Tax Act of 1961 is the act that governs the levy of income tax in India. There are several sections in the act that taxpayers can use to effectively reduce their tax liability. One such section is 80CCC. Wondering what section 80CCC of the Income Tax Act, 1961 is and how it can help you save tax? Continue reading to find out. 

What is Section 80CCC of the Income Tax Act, 1961?

A part of the broader section 80C of the Income Tax Act, section 80CCC deals with the contributions made by a taxpayer to eligible pension plans. Pension plans are offered by life insurance companies and are designed to offer you a stable and regular source of income after your retirement. Such plans invest in market-linked instruments like mutual funds and bonds. 

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According to the provisions of the section, you can claim the premiums paid towards eligible pension plans as a deduction from your total taxable income. By reducing your total taxable income, you can effectively lower your tax liability.  

Since section 80CCC of the Income Tax Act, 1961 is a part of section 80C, the maximum amount that you can claim as a deduction is limited to Rs. 1.5 lakhs in a financial year. 

Who Can Claim a Deduction Under Section 80CCC of the Income Tax Act, 1961? 

The deduction under section 80CCC can only be claimed if you satisfy the conditions listed below.

  • You must be a resident or non-resident individual taxpayer
  • You must have invested in an eligible pension plan
  • Your investment in the pension plan must have been made from your taxable income 

Note: The deduction under section 80CCC is not available to Hindu Undivided Families (HUFs) or any other entities other than an individual taxpayer. 

Are All Pension Plan Investments Eligible For Deduction Under Section 80CCC of the Income Tax Act, 1961? 

No. Not all pension plan investments are eligible for deduction under this section. Section 10 (23AAB) of the Income Tax Act, 1961 lays out certain conditions that pension plans need to fulfill to be eligible for section 80CCC deduction. Here’s a quick look at what they are. 

  • The pension plan must be from either the Life Insurance Corporation of India (LIC) or any other approved life insurer 
  • The pension plan must be set up on or after August 01, 1996 
  • The pension plan must be approved by the Insurance Regulatory and Development Authority of India (IRDAI) 

Things You Should Know About Section 80CCC of the Income Tax Act, 1961

Now that you have an idea of what the section entails, here’s a list of key highlights that you need to know. 

  • Any amount that you receive on maturity or when you surrender your pension plan before the end of its tenure will be taxed according to your income tax slab rate.
  • Interest, bonuses, or loyalty additions you receive from the pension plan cannot be claimed as a deduction under section 80CCC of the Income Tax Act.
  • The pension that you receive during a year will be taxed as per your income tax slab rate. 
  • The premium that you pay towards a pension plan during a financial year can only be claimed as a deduction during the year of payment. For instance, if you’ve paid a single lump sum premium of Rs. 5 lakhs during the financial year 2022 - 2023, you can only claim up to Rs. 1.5 lakhs for that particular year. The remaining amount of Rs. 3.5 lakhs cannot be claimed by you during any subsequent years. 
  • You need to ensure that you have a record of the premium payment made towards a pension plan to claim a deduction under section 80CCC of the Income Tax Act. 
  • The amount of exemption that you claim under the section should never be higher than your total taxable income. 

Deduction Under Section 80CCC of the Income Tax Act, 1961 - An Example

Here’s a hypothetical example to help you understand how the deduction under this section works. 

Assume that your total taxable income is Rs. 8 lakhs. Since you wish to avail a deduction under section 80CCC of the Income Tax Act, you choose to get taxed under the old income tax regime. According to the income tax slab rates of the old regime, you fall under the 20% income tax bracket. Here’s a quick calculation of your total tax liability under the old tax regime. 

Particulars

Tax 

Up to Rs. 2.5 lakhs 

Nil

Rs. 2.5 lakhs to Rs. 5 lakhs 

Rs. 12,500 

(5% x Rs. 2.5 lakhs) 

Rs. 5 lakhs to Rs. 8 lakhs 

Rs. 60,000

(20% x Rs. 3 lakhs)

Cess

Rs. 2,900

(Rs. 12,500 + Rs. 60,000) x 4%

Total Tax Liability

Rs. 75,400

(Rs. 12,500 + Rs. 60,000 + Rs. 2,900)

Now, in a bid to save tax, you decide to invest in an eligible pension plan from the Life Insurance Corporation of India (LIC). The premium that you pay each month towards the plan comes up to around Rs. 14,000. This brings your annual premium to around Rs. 1,68,000 (Rs. 14,000 x 12 months). 

However, according to the provisions of section 80CCC of the Income Tax Act, 1961, you can claim a maximum of up to Rs. 1.5 lakhs during a financial year. So, after deductions, your total taxable income drops to Rs. 6.5 lakhs (Rs. 8 lakhs - Rs. 1.5 lakhs). 

Here’s an overview of how much tax you’ve managed to save thanks to section 80CCC of the Income Tax Act.

Particulars

Tax 

Up to Rs. 2.5 lakhs 

Nil

Rs. 2.5 lakhs to Rs. 5 lakhs 

Rs. 12,500 

(5% x Rs. 2.5 lakhs) 

Rs. 5 lakhs to Rs. 6.5 lakhs 

Rs. 30,000

(20% x Rs. 1.5 lakhs)

Cess

Rs. 1,700

(Rs. 12,500 + Rs. 30,000) x 4%

Total Tax Liability 

 

(After deduction under section 80CCC) 

Rs. 44,200

(Rs. 12,500 + Rs. 30,000 + Rs. 1,700)

Total tax savings as a result of section 80CCC = Rs. 31,200 (Rs. 75,400 - Rs. 44,200)

Conclusion

As you can see, section 80CCC of the Income Tax Act, 1961 is a great way to reduce your tax liability. However, you should keep in mind that since this section is a part of section 80C, the maximum amount that you can claim under both these sections is limited to Rs. 1.5 lakhs. So, if you already have maxed out investments to the tune of Rs. 1.5 lakhs in either of these two sections, you cannot claim any further amount as a deduction under the remaining section. 

Alternatively, if you’re looking for other tax-saving investment options other than pension plans, you can consider investing in the Equity Linked Savings Scheme (ELSS). Your investments under this type of mutual fund are eligible for deduction under section 80C of the Income Tax Act. 

However, to invest in such a fund, you would first need to open a demat account in your name. This will help make the investment process a lot more seamless and hassle-free. Visit Motilal Oswal today to open a trading and Demat account for free through a paperless account opening process. 

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