Section 10(23AAB) of the Income Tax Act provides an exemption for income of a pension fund set up by:
- Life Insurance Corporation of India (LIC) or
- Any other insurer,
provided the fund is:
- Established on or after 1st August 1996,
- Set up under a pension scheme,
- Receives contributions from individuals for the purpose of receiving pension, and
- Approved by the Insurance Regulatory and Development Authority (IRDA) or the Controller of Insurance.
Example:
Let’s say ABC Life Insurance Co. launches a pension scheme in 2020 called “Secure Retire Fund,” which is approved by IRDA. Individuals contribute regularly to this fund to receive pension benefits after retirement.
In a given financial year, the fund earns ₹50 crore from investments. Since this fund qualifies under Section 10(23AAB), the entire ₹50 crore is exempt from income tax, provided it complies with the conditions mentioned above.
This exemption ensures that pension funds can grow tax-free, ultimately benefiting policyholders with better retirement pay-outs.
