Section 80CCC was introduced so as to encourage taxpayers to invest in Pension Funds and secure their future. Section 80CCC provides for Income Tax Deduction for contribution to Pension Funds under Chapter VI-A from the Gross Total Income of a taxpayer for the financial year in which the contribution is being made.
Section 80CCC does not limit itself only to Resident Individuals and therefore, Non-Resident Individuals contributing to Pension Funds can also claim deduction under Section 80CCC.
If a taxpayer has paid any amount to initiate or continue any annuity plan of any insurance company for receiving any pension, the taxpayer would be allowed a deduction for the amount paid from the Gross Total Income. This deduction is only available to an individual taxpayer and not to HUF.
It is pertinent to note here that deduction under Section 80CCC can only be claimed in the year in which the amount has been paid. This can be explained with the help of an example. If a taxpayer forgets to contribute to a pension fund in 2013 and in 2014 he pays the amount for both 2013 as well as 2014, he cannot claim deduction under this section 2013 and can claim deduction in 2014 for the total amount paid in 2014 at the time of filing of income tax return.
Deduction for contribution Annuity Plan of Insurance Company is allowed under Section 80CCC. Deductions for Annuity Plans of other than Insurance Companies is allowed under the following sections:-
- Section 80CCD(1) & 80CCD(2): Deduction for Contribution to NPS
- Section 80C: Deduction for Contribution Pension Plan of UTI/Mutual Fund
Section 80CCC – Maximum Deduction allowed
The maximum deduction allowed under Section 80CCC has been increased from Rs. 1 Lakhs to Rs. 1.5 Lakhs. This increase in deduction was announced by the Finance Minister Arun Jaitley in Budget 2015.
If the amount deposited in a pension fund has been claimed as a deduction under Section 80CCC, it should not be claimed as a deduction under any other section of the Income Tax Act.
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Tax treatment on receiving back the Funds invested
The amount that is deposited in the pension fund is received back by the taxpayer after a specified time as pension on a monthly basis. In case the taxpayer surrenders the policy, the amount deposited by him would also be returned back with interest.
The amount so received as annuity or on surrender of the policy by the taxpayer himself or by the nominee which has earlier been claimed as a deduction under Section 80CCC would be taxable at the time of receipt as per the Income Tax Slabs of the taxpayer for the year in which the amount is received.
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From the amount received from the Pension Fund, certain exemptions are also allowed under Section 10 before the levy of income tax.
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