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Income Tax – Plan it, don’t evade it. 

26 May, 2020 CA Shikha Gupta

‘This is the season of Income Tax Returns and the timing of this write up could not be any better. As the tax payers gear up for a long marathon of grappling with various provisions of taxation in the months to come, I am going to highlight one of the most unorthodox tax saving instruments with a dual purpose of saving tax and ensuring a regular stream of annuity after retirement. However, before I do that, let’s get our basics right.

What is tax planning?

Tax planning is an arrangement by which full advantage is taken of the concessions and benefits conferred by the statue, without violation of the legal provisions. Tax panning is carried out within the framework of law by availing the deductions and exemptions permitted by law and thereby minimizing tax liability.

Pension plans – The new go to tax saving device.

My emphasis is on tax planning relating to Pension Plans. Pension Plans, also known as annuity plans, provide a regular flow of income to those who have retired. You, the policy holder, can choose the exact date on which you want to start receiving your pension. Most plans also come with the insurance cover that can be claimed in the unfortunate case of the policy holder’s demise.

Apart from future security and insurance protection, investing in a pension plan also qualifies for some tax benefits under Section 80CCC.

Perhaps one of the best features of this device is that it is open for salaried as well as non – salaried individuals. Such investment in pension plans can also be claimed as deduction under Section 80CCC and Section 80CCD. However, one must also keep an eye on the maximum amount which one can claim as deduction in a year, which as per current tax laws stands to INR 1,50,000/-.

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 the taxpayer for financial year in which 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 individual taxpayer and not to HUF.

Section 80CCD provides for Income Tax deductions for contributions made to the notified pension scheme of the Central Government i.e. for contribution to National Pension Schemes. Deduction under this section is only available to individuals and not to HUF’s. The individual claiming deduction under this section may be Resident or Non- Resident.

With such wide array of options available, I hope this hidden gem will be useful for tax payers at large to plan their taxes and this time around, even more meticulously.

Disclaimer: This write up is for informational purposes only and should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained herein constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments. Please consult your tax consultant for a detailed analysis for tax planning.