TAXABILITY OF PENSION PLANS

PENSION PLANS – with and without life covers

Pension Plans are available with two different options: with life cover and without life cover. The ‘with cover’ pension plan offers a guaranteed life cover in case of a contingency, even if the amount built till the date of death happens to be below the total. Under the ‘without cover’ pension plan, the amount built till the date of death (net of deductions like expenses and premiums due) is given out to the nominees in case of an eventuality, with no sum assured.

The taxability of a pension plan is determined in two stages: first, at the time of making annual premium payments. For life insurance plans, the premium which is paid is eligible for deduction under section 80C. On the other hand, premium payments towards pension plans are eligible for deduction under Section 80CCC. The overall limit for deduction under Sections 80C & CCC is Rs.1 lakh i.e. one is entitled for same tax deduction for the premium mount paid for; with or without life cover pension plans.

At the time of maturity, the commute value of the pension that is received from a life insurance plan is tax-free. However, the monthly pension amounts are fully taxable, irrespective of whether or not the plan holder claimed the deduction under Section 80C or CCC at the time of payment of premium.