Section 80CCC deduction – Contribution to certain Pension Funds

If the assessee has paid any amount towards any annuity plan of the Life Insurance Corporation of India (LIC) or any other insurer for the purpose of receiving pension from a pension fund, a deduction is allowed. The pension paid from the policy is also included in taxable income. This section restricts the use of a general life insurance policy to claim deductions. However, premiums paid under Section 80C can still be deducted from taxable income.

Eligible Assessee
Individuals (both residents and non-residents) who paid the money for the renewal or purchase of a life insurance policy from their taxable income are eligible for a deduction.

Quantum of Deduction
1. 1. The whole amount paid or deposited (except, if any, any interest or bonus accrued or credited to the assessee's account); or

2. 2. Rs. 1,50,000/-, whichever is less, within the overall amount set out in section 80CCE (Rs. 1,00,000 up to the assessment year 2015-16).

Essential Conditions:
1. The amount is to be paid out of his income chargeable to tax of the concerned individual.
2. The payment of funds from the policy should be made as per the terms of Section 10 (23AAB) from the accumulated funds.
3. Where deduction has been allowed under section 80CCC, deduction under section 80C will not be available in respect of the payment made towards the annuity plan.
4. If the assessee or his nominee receives any amount (including interest or bonus), standing to the credit of the assessee in respect of which deduction under section 80CCC has been allowed to him.
• On account of the surrender of the annuity plan, whether in whole or in part in any previous year; or
• as pension from the annuity plan
• Such amount shall be included in the total income of the assessee or his nominee in the year of receipt.
5. If any bonuses are received or interest is accrued, it is not eligible for deduction under Section 80CCC.
6. Any rebates that were available on investment in annuity plans before April 2006 are not Allowed under Section 88.
7. Any amount deposited before 01.04.2006 is not eligible for deduction.
8. Any amount received from the policy as a monthly pension is liable for taxation as per the prevailing rates.
9. The tax benefit can only be claimed on the premium amount paid in the applicable financial year. If the payment to the pension funds is made in lump-sum, then the tax deduction under section 80CCC can only be claimed for the year in which the lump sum payment was made.

Section 10 (23AAB) of the Income Tax Act, 1961 provides that if an individual contributes towards an annuity plan offered by the Life Insurance Corporation (LIC) of India on or after 01.08.1996, or contributes to keep in effect a pension plan offered by any other recognised insurer in India, such contribution is tax deductible. This benefit is available only if the insurer providing the pension plan to the subscriber is approved by the Insurance and Development Authority of India (IRDAI). The contributions made by the taxpayer to the policy must have been with the intention of earning pension income in the future.

Text of Section 10(23AAB)
(23AAB) any income of a fund, by whatever name called, setup by the Life Insurance Corporation of India on or after the 1st day of August, 1996 under a pension scheme, —
• To which contribution is made by any person for the purpose of receiving pension from such fund;
• which is approved by the Controller of Insurance.

Explanation. – For the purposes of this clause, the expression “Controller of Insurance” shall have the meaning assigned to it in clause (5B) of section 2 of the Insurance Act, 1938 (4 of 1938.);

Assessee has surrendered the policy
If the assessee has surrendered the policy, amount received on account of surrender shall be considered to be income of the assessee under the head “Income from other sources”.

Pension: Income under the head “Other Sources”
If any pension has been received under this policy, it will be considered to be income under the head “other sources”.