Section 80CCC: Deduction for Contribution to Specified Pension Funds
The benefits of being a Government employee are not just limited during the employment period but can also be enjoyed after employment as well. Retiring as a Government employee gives a major benefit in the form of monthly pensions to individuals. But what about the employees who are employed with non-government companies? What benefits will they receive after retirement? The answer to this question also gives a background knowledge of Section 80CCC of the Income Tax Act, 1961.
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To encourage private sector employment and benefits after retirement, individual employees are recommended to make a monthly contribution to specified pension funds during their employment. Post employment, they will receive monthly pensions and can enjoy the retirement benefits like government employees. The contributions made to specified pension funds during the employment period are allowed as a deduction under Section 80CCC in the year of such contribution.
This article aims to make the reader understand Section 80CCC along with all its features, requirements and other aspects.
Introduction to Section 80CCC
Section 80CCC is an investment-based deduction whereby the amount paid towards the pension fund can be claimed as a deduction by the taxpayer upon fulfilling conditions laid down in the section. However, not all contributions towards the pension fund are eligible for the deduction under Section 80CCC. Only contributions towards specified pension funds are eligible for deduction under Section 80CCC. A fixed amount is deducted from the employee’s monthly salary similar to the provident fund deduction and deposited in the specified pension fund by the employer. The benefit of which can be claimed by the employee in the form of deduction under Section 80CCC.
Key features of Section 80CCC
Section 80CCC offer the following key features:
Only individuals can claim the benefit under Section 80CCC. As a result, a Hindu Undivided Family (HUF) cannot claim deduction under Section 80CCC.
The residential status of the individual has no relevance while claiming the benefit under Section 80CCC. Hence, both resident individuals and non-resident individuals can claim the benefit under Section 80CCC.
Deduction under Section 80CCC can be claimed only when the individual has a taxable income exceeding the basic exemption limit.
Section 10 (23AAB) specifies the pension funds that are eligible for investment to claim the benefit under Section 80CCC.
The interest and other benefits received from the investment made in the pension fund are taxable.
Amount received by the individual at the time of surrender of the pension fund is liable to tax.
Prerequisites to avail benefit under Section 80CCC?
The benefits under Section 80CCC can be availed only upon satisfaction of certain conditions. Following conditions are to be fulfilled to enjoy the maximum benefits under Section 80CCC:
The investment must be made to specified pension funds by individuals only.
The investment under the pension funds must be paid out of the net taxable income of the individual.
An individual should have a valid proof of investment. A random amount of deduction cannot be claimed under Section 80CCC.
The amount of deduction under Section 80CCC cannot exceed the net taxable income of the individual. Meaning, an individual cannot claim a refund while availing the benefit of deduction under Section 80CCC.
Who can claim deduction under Section 80CCC?
Section 80CCC allows deduction to be claimed by individuals only. Be a resident individual or a non-resident individual both can claim deduction under Section 80CCC. However, the benefits of Section 80CCC cannot be enjoyed by any person other than the individual, not even a Hindu Undivided Family (HUF).
Section 10 (23AAB)
Section 10 (23AAB) specifies the pension funds, in which individuals can invest to become eligible for deduction under Section 80CCC. As per Section 10 (23AAB) of the Income Tax Act, 1961, he following investments made by individuals in pension funds, whether a new purchase or renewal, are eligible for deduction under Section 80CCC:
Investment towards the annuity plan of Life Insurance Corporation of India on or after 1 August, 1996.
Investment towards any other pension fund offered by a recognized insurer in India.
Insurers approved by the Insurance and Development Authority of India (IRDA) can offer the pension plan to subscribers.
Section 80C vis-Ã -vis Section 80CCC
Section 80C allows an individual and members of Hindu Undivided Families (HUFs) to make an investment in any of the instruments listed in the said section irrespective of the taxability of income. Whereas, Section 80CCC makes it compulsory for the individual to make an investment in specified pension funds from the net taxable income only.
Examples of investment options under Section 80C are: Life Insurance Premium, Public Provident Fund, National Bank for Agriculture and Rural Development (NABARD) Rural Bonds, Unit Linked Insurance Plans (ULIPs), National Saving Certificate (NSC), Tax Saving Fixed Deposits, Employee Provident Fund, Principal repayment made towards Home Loan, Sukanya Samriddhi Yojana, and a few others.
The investment option under Section 80CCC, however, is limited to specified pension funds only as mentioned under Section 10 (23AAB).
Section 80CCD vis-Ã -vis Section 80CCC
An individual can claim deduction under Section 80CCD by making an investment in National Pension Scheme (NSC) or Atal Pension Yojana (APY). Section 80CCD allows different types of deductions for salaried employees as well as for self-employed individuals. For salaried employees, a deduction of 10% of total salary is allowed. Whereas, non-salaried individuals who participate in government pension plans can avail a deduction of 20% of gross income. Even though the maximum limit of deduction under Section 80C is INR 1,50,000, an additional deduction of INR 50,000 is allowed under Section 80CCD(1B) in specific circumstances. Therefore, the limit of INR 1,50,000 is increased to INR 2,00,000 in case of deduction under Section 80C.
However, the investment option under Section 80CCC is limited to specified pension funds only as stated in Section 10 (23AAB). Not all types of investments in pension funds are eligible for deduction under Section 80CCC.
Maximum deduction under Section 80CCC
According to Section 80CCE, the maximum deduction allowable under Section 80C, 80CCC, and 80CCD is INR 1,50,000. However, with an additional benefit under Section 80CCD(1B), after satisfaction of certain conditions, INR 50,000 can be claimed in addition to INR 150,000. Thus, a combined deduction of INR 2,00,000 is allowed to an individual under Section 80C if the conditions specified under Section 80CCD(1B) are fulfilled.
Section 80CCC and New Tax Regime
With the introduction of a New Tax Regime in India with effect from F.Y. 2020-2021, the taxpayers have to let go of a lot of tax benefits, deductions and exemptions. In comparison to the old tax regime, the New Tax Regime, offers lower tax rates.
Under the New Tax Regime, the individual cannot claim common deductions as it was allowed to be claimed under the old tax regime. Deduction under Section 80CCD(2) is only allowed to be claimed in the new tax regime. Other commonly available deductions under the umbrella of Section 80C, like, 80C, 80CCC, 80CCD(1), and 80CCD(1B) cannot be claimed by the individual.
FAQs:
Q1. Can an individual claim a deduction under Section 80C and Section 80CCC simultaneously?
Yes. An individual can claim deductions under both Section 80C and Section 80CCC at the same time. Section 80C provides numerous investment opportunities. Section 80CCC, on the other hand, only allows investments in specified pension funds. An individual can make investments according to his choice and feasibility and claim the deductions under both the sections simultaneously.
Q2. Can an individual claim a deduction under Section 80CCD and Section 80CCC at the same time?
Yes. An individual can claim deductions under both Section 80CCDÂ and Section 80CCC at the same time. Section 80CCD provides investment opportunities. Section 80CCC, on the other hand, only allows investments in specified pension funds. An individual can make investments according to his choice and feasibility and claim the deductions under both the sections simultaneously.
Q3. Can an individual claim a deduction under Section 80C, Section 80CCC, and Section 80CCD at the same time?
Yes. Each deduction offers an option to the individual to make investment as per the choice and feasibility of his own. Since, the requirements and terms and conditions of each deduction is different, an individual can choose amongst these three options while planning his tax. Moreover, deductions under Section 80CCC and Section 80CCD are available in addition to Section 80C. A maximum of INR 1,50,000 can be claimed as a deduction combinedly in all the three sections viz., Section 80C, Section 80CCC, and Section 80CCD. However, as per Section 80CCD(1B), an additional deduction of INR 50,000 can be claimed over and above INR 1,50,000.
Q4. Suppose, an individual misses the due date of filing the Income Tax Return (ITR). Can he claim the deduction under Section 80CCC in a Belated Return?
The late filing of ITR has several disadvantages including disallowance of carry forward of losses and availability of set offs except for house property loss. Moreover, certain deductions under Section 80 are also not allowed to be claimed in a Belated Return. However, deduction under Section 80C is allowed to be claimed even if an individual misses the due date of filing the ITR and is filing a Belated Return. As a result, an individual can claim deduction under Section 80CCC as well, since Section 80CCC is a part of Section 80C only.
Q5. Investment towards any pension fund in India will allow an individual to claim the deduction under Section 80CCC. True or False? Explain with reasons.
False. Investments made in specified pension funds in accordance with Section 10 (23AAB) are eligible for deduction under Section 80CCC. As a result, not all investments made towards any pension fund in India will allow an individual to claim the deduction under Section 80CCC.
Q6. What are the tax implications of receipts from pension funds?
The tax treatment of receipts from pension funds are as follows:
The interest, bonus and other benefits received by the individual from the investment made in the pension funds are taxable.
If the annuity plan is surrendered by the individual either in whole or part, the amount so received will be taxable.
The pension received from the annuity plan will be considered taxable in the hands of the individual.
The tax liability arises in the year of receipt of income.
Q7. Can an individual claim a deduction under Section 80CCC irrespective of the tax regime followed by him?
No. An individual cannot avail deduction under Section 80CCC if he opts for the new tax regime.. Once an individual opts for the new tax regime, he has to let go several tax deductions and benefits as it was allowed in the old tax regime. As a result, the benefit of deduction under the said section can be availed under the old tax regime only.
Q8. What is the maximum deduction under Section 80CCC?
As per Section 80CCE, the maximum of INR 1,50,000 can be claimed as a total deduction under Sections 80C, 80CCC, and 80CCD. Therefore, even if an individual makes a higher investment, the maximum deduction that can be claimed under Section 80CCC is INR 1,50,000.
Q9. Suppose an individual makes an investment in a pension fund for INR 3,50,000 in the F.Y. 2023-2024. What is the maximum amount of deduction he can claim under Section 80CCC?
The maximum deduction that can be claimed under Section 80CCC is INR 1,50,000. Therefore, if an individual makes an investment in a pension fund for INR 3,50,000 in the F.Y. 2023-2024, he can claim a maximum deduction of INR 1,50,000 only under the said section.
Q10. Can a deduction be more than the taxable income of the individual?
The taxpayers are allowed to reduce their tax liability by claiming deductions made in accordance with the tax laws. The intent of the Income Tax Law is to lessen the burden of the taxpayer while also protecting the interest of the Revenue. As a result, the maximum deduction that can be claimed by the taxpayer will be restricted to the net taxable income.
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