Section 80CCC Under Income Tax Act: Tax Benefits on Contributions to Pension Plans in India

Beyond the popular Section 80C for general savings, the Income Tax Act, 1961, provides specific avenues for encouraging retirement planning. Section 80CCC is one such crucial provision under Chapter VI-A that allows taxpayers to claim a deduction for contributions made towards certain pension or annuity plans.

While closely linked to Section 80C and Section 80CCD(1) for the overall limit, Section 80CCC has a distinct focus: contributions made to annuity plans offered by insurers. Understanding this section is vital if you are investing in such plans for your retirement.

What is Section 80CCC? (The Concept)

Section 80CCC offers a deduction from your Gross Total Income (GTI) for amounts paid towards specific pension schemes.

• Gross Total Income (GTI): The sum of income computed under all five heads of income (Salaries, Income from House Property, Profits and Gains of Business or Profession, Capital Gains, and Income from Other Sources), after allowing for set-off of losses.  
• Deduction: An amount subtracted from GTI to arrive at Total Taxable Income.
• Chapter VI-A: The chapter in the Income Tax Act (Sections 80C to 80U) listing various deductions available from Gross Total Income.

The core idea of Section 80CCC is to provide a tax incentive for individuals to contribute to approved retirement-focused plans offered by insurance companies, ensuring a steady income stream (pension) during their post-retirement years.

Who Can Claim Section 80CCC Deduction?

The deduction under Section 80CCC is available only to Individuals.

• Individual: A natural person.
• Assessee: A person (in this case, an individual) by whom tax is payable.

Unlike Section 80C (which is available to Individuals and HUFs), this specific deduction cannot be claimed by Hindu Undivided Families (HUFs) or any other type of assessee (like companies, firms, LLPs).

The Eligible Contribution Under Section 80CCC

To claim a deduction under Section 80CCC, the individual must have paid or deposited any sum in the previous year (PY 2024-25 for AY 2025-26) towards a specific type of contract:

• A contract for any annuity plan of Life Insurance Corporation of India (LIC) or any other insurer.
• The purpose of this contract must be to receive a pension from a fund referred to in Section 10(23AAB). (Section 10(23AAB) specifies conditions for approval of pension funds of insurers).
• The amount contributed must be out of the individual’s income chargeable to tax.

Explanation:

• Annuity Plan: A type of insurance contract where you make contributions (either a lump sum or regular payments) to the insurer, and in return, the insurer pays you a regular income (pension) for a specified period or for life, starting from a future date.
• Insurer: An insurance company (like LIC, HDFC Life, ICICI Pru Life, etc.) registered with the Insurance Regulatory and Development Authority of India (IRDAI).
• Pension: The regular periodic payment received from the annuity plan.

The Maximum Limit & Its Link to 80C and 80CCD(1)

The amount of deduction allowed under Section 80CCC itself is restricted to the actual amount contributed during the year. However, Section 80CCC deductions do not have their own independent limit. Instead, they are part of a larger combined limit pool defined by Section 80CCE.

Section 80CCE states that the aggregate amount of deductions claimed by an individual under three sections combined cannot exceed a specified limit:

Deduction Limit under Section 80CCE=Section 80C+Section 80CCC+Section 80CCD(1)

For Assessment Year 2025-26 (relevant to Previous Year 2024-25), the maximum aggregate deduction allowed under Section 80CCE is ₹ 1,50,000.

Explanation:

• Aggregate Limit: The ₹ 1,50,000 is the total maximum deduction you can claim across all eligible investments/contributions falling under Section 80C, Section 80CCC, and Section 80CCD(1).
• This means if you contribute ₹ 80,000 to an eligible annuity plan (under 80CCC) and also invest ₹ 1,00,000 in PPF (under 80C), your total eligible amount is ₹ 1,80,000. However, the deduction you can claim under Section 80CCE (which covers both 80C and 80CCC) is restricted to ₹ 1,50,000.

(Note: Employer’s contribution to NPS Tier-I is eligible for an additional deduction under Section 80CCD(2), which is outside this ₹ 1.5 Lakh limit).

Taxability of Pension and Surrender Value (Crucial Point)

While Section 80CCC allows a deduction for the contribution to the annuity plan, the amounts received from the plan later are generally taxable:

• Pension Received: Any amount received as pension from the annuity plan where a deduction was claimed under Section 80CCC is fully taxable as income in the hands of the individual in the year of receipt. It is typically added to your total income and taxed at your applicable slab rates.
• Amount Received on Surrender: Any amount received by an individual upon surrender of the annuity plan (including any interest or bonus accrued on contributions) is also fully taxable in the year of receipt. This applies if you withdraw the money before the annuity payments begin or if the plan allows for lump-sum withdrawal on vesting.

This means the tax benefit under Section 80CCC is primarily on the contribution phase (tax-deferred growth), but the withdrawal phase (pension) is taxed. This is often referred to as an EET (Exempt-Exempt-Taxable) model for the withdrawal.

How to Claim Section 80CCC Deduction

To claim the deduction under Section 80CCC:

• Ensure the payment or deposit was made during the relevant Previous Year (e.g., FY 2024-25).
• Report the amount paid/deposited in your annual Income Tax Return (ITR) under the appropriate section.
• Keep the proof of payment (receipts issued by the insurer) as evidence. You may also need to submit this proof to your employer if you want them to consider this deduction for calculating TDS from your salary (reflecting it in your Form 16).

Examples

Example 1: Only 80CCC Contribution

Mr. Vijay (an individual) contributed ₹ 60,000 to an eligible annuity plan in PY 2024-25. He made no other investments eligible under Section 80C or 80CCD(1).

• Eligible amount under 80CCC = ₹ 60,000
• Overall limit under 80CCE = ₹ 1,50,000
• Mr. Vijay’s Deduction under Section 80CCC (within 80CCE limit) = ₹ 60,000

Example 2: 80C and 80CCC Contributions (Total within Limit)

Ms. Aarti (an individual) made the following payments in PY 2024-25:

• PPF Contribution (Sec 80C): ₹ 1,00,000
• Contribution to Annuity Plan (Sec 80CCC): ₹ 40,000
• Total Eligible Amount = ₹ 1,00,000 (80C) + ₹ 40,000 (80CCC) = ₹ 1,40,000
• Overall limit under 80CCE = ₹ 1,50,000
• Ms. Aarti’s Total Deduction under Section 80CCE = ₹ 1,40,000 (₹ 1,00,000 under 80C and ₹ 40,000 under 80CCC)

Example 3: 80C, 80CCC, and 80CCD(1) Contributions (Total exceeding Limit)

Mr. Suresh (an individual) made the following payments in PY 2024-25:

• Life Insurance Premium (Sec 80C): ₹ 30,000
• ELSS Investment (Sec 80C): ₹ 70,000
• Contribution to Annuity Plan (Sec 80CCC): ₹ 60,000
• Employee’s contribution to NPS Tier-I (Sec 80CCD(1)): ₹ 40,000
• Total Eligible Amount = ₹ 30,000 + ₹ 70,000 (under 80C) + ₹ 60,000 (under 80CCC) + ₹ 40,000 (under 80CCD(1)) = ₹ 2,00,000
• Overall limit under 80CCE = ₹ 1,50,000
• Mr. Suresh’s Total Deduction under Section 80CCE = ₹ 1,50,000 (This deduction will be distributed across the eligible sections based on the amounts contributed, effectively limiting the claim from each within the overall cap).

📌Important Points to Remember about Section 80CCC

• Eligible Assessee: Only Individuals.
• Eligible Investment: Contribution to annuity plans of insurers for receiving pension.
• Payment Basis: Deduction is for the amount paid or deposited during the previous year.
• Overall Limit (Section 80CCE): The deduction under 80CCC is part of the ₹ 1,50,000 combined limit with Section 80C and Section 80CCD(1).
• Taxability of Pension: The pension or any amount received on surrender of the plan is taxable upon receipt.
• Proof Required: Maintain receipts from the insurer.
• Tax Regimes: For Assessment Year 2025-26 (relevant to Previous Year 2024-25) and onwards, deduction under Section 80CCC is NOT available if you choose to file your tax return under the default/New Tax Regime (Section 115BAC). This deduction can only be claimed if you opt out of Section 115BAC and choose to be taxed under the Old Tax Regime.

Conclusion

Section 80CCC provides a specific tax deduction avenue for individuals choosing to invest in pension/annuity plans offered by insurance companies as part of their retirement planning. While offering tax relief on the contribution amount, it’s crucial to be aware that the pension received from such plans is taxable. Importantly, the deduction claimed under Section 80CCC is subject to the overall ₹ 1,50,000 limit under Section 80CCE, combining eligible amounts under Sections 80C, 80CCC, and 80CCD(1). Furthermore, this deduction is not available under the default New Tax Regime (Section 115BAC).

For accurate tax planning involving Section 80CCC and other related provisions, and to determine which tax regime is more beneficial for your specific circumstances, consulting a qualified tax professional is highly recommended.