As a taxpaying Indian citizen, you might always look for different ways to reduce your taxes. You can claim tax deductions under different sections of the Income Tax Act such as 80C, 80CCC and 80CCD that will help to reduce your tax outgo. The popular option for most people to save on taxes is Section 80 C along with 80CCC.
The main intention of obtaining taxes from the citizens by the government is to provide proper public services. But if you end up paying a significant amount of your earnings as tax, your savings may take a hit. Therefore, it is important that you have all the necessary information about the sections of the Income Tax Act to save more taxes in future.
Read on to learn everything about 80CCC deduction.
What is Section 80CCC?
The Section 80CCC of Income Tax Act 1961, helps you to claim tax deductions for the pension funds in which you have invested. Section 80CCC lets you claim a maximum of Rs 1,50,000 during a particular year, which will include the cost involved in buying a new policy or renewing an existing policy. The most important condition for claiming this deduction is that the policy must give you a periodical annuity or a pension. However, the pension amount, which might include any bonuses received and interests gained on the annuity, is taxable.
An important highlight of Section 80CCC is that its deduction limit is clubbed along with the limits of sections 80CCD and 80C. That is why the maximum deduction limit is Rs 1,50,000 under 80CCC.
Eligibility criteria for tax deduction under Section 80CCC
To be eligible for availing tax deductions under the Section 80CCC, the following criteria should be met:
• You have to pay an amount to obtain a pension from a particular fund, according to Section 10 (23AAB).
• You need to be either a resident of India, NRI or a foreign national to be eligible for 80CCC deduction.
• Hindu Undivided Family or HUF are not eligible for availing tax deduction under Section 80CCC.
• You have to purchase a pension plan or an annuity from a recognized insurance company.
• If you have paid an amount for continuing existing insurance or an annuity plan, you can claim a tax deduction for the amount paid from the gross total income.
Besides, you have to remember that you can claim tax deductions only for the year when you paid the amount for the pension. For example, if you have made a one-time payment for a specific year, you can enjoy tax deductions under Section 80CCC for that year. For the remaining years when you get the coverage, you cannot claim deductions. Additionally, if you are making payments for the premiums on a regular basis, such as annual payments, you can claim tax deductions every year when you pay.
Key features of Section 80CCC
Here are some key features that you need to know before claiming tax deduction under Section 80CCC:
• 80CCC deductions can be availed only if you have paid some amount towards the renewal or purchase of an annuity plan.
• The policy for which you make payments must pay out a pension amount from accumulated funds, according to the guidelines mentioned in Section 10 (23AAB).
• You can claim tax deductions for a maximum of Rs 1,50,000 in a particular financial year.
• If you surrender the policy, the surrender value you obtain will be taxable.
• You are not allowed to claim a tax deduction for the bonuses and interests that you receive from the policy. However, the proceeds you obtain are taxable.
• The rebates that were available for investing in the annuity before April 2006 are not claimable under Section 80CCC.
• Amounts that you might have deposited before April 2006 are not eligible for tax deductions.
• Payments you make for National Pension Scheme or Atal Pension Yojna cannot be claimed for tax deductions under 80CCC. But, these schemes are eligible for tax deductions under Section 80CCD.
Why should you know about Section 10 (23AAB)?
Before you opt for 80CCC tax deduction, you have to know about Section 10 (23AAB) as well. This act states that if an individual makes a contribution towards policy or a payment for renewing the plan on or after 1st August 1996, he or she can claim tax deductions. The law also states that the insurer has to be recognized, which means the policy provider has to be recognized and approved by the Insurance and Development Authority of India (IRDAI). The contributions towards the policy must have been made with the intention to earn a pension amount in future. If these conditions are satisfied, only then you are eligible for claiming tax deductions under Section 80CCC.
To avail tax exemptions under 80CCC, you have to keep a check on the amounts you have to pay for the insurance policy. You have to remember that the exemption limit must not go beyond your income. So, before opting for tax exemption under 80CCC, understand the rules and regulations of the Income Tax Act. You can also consult a financial advisor or tax consultant in this regard.