Section 123 Deductions — The New Section 80C

For decades, “80C” was shorthand every Indian taxpayer knew — the ₹1.5 lakh deduction basket for PPF, ELSS, insurance, and more. Under the Income Tax Act, 2025, this now lives in Section 123, read with Schedule XV. The substance is identical; only the citation has changed.

The Basics

•             Maximum deduction: ₹1,50,000 per financial year

•             Available only under: the Old Tax Regime — Section 123 deductions are not available if you opt for the new regime

•             Who can claim: Individuals and HUFs

What Qualifies (Schedule XV)

Category

Examples

Life insurance

Premiums paid for self, spouse, or children

Provident fund

Employee PF contribution, PPF, VPF

Equity-linked savings

ELSS mutual funds (3-year lock-in)

Fixed deposits

5-year tax-saving bank FDs

National Savings Certificate

NSC and accrued interest reinvested

Children’s education

Tuition fees (up to 2 children)

Home loan

Principal repayment

Pension plans

Certain annuity/pension products

Sukanya Samriddhi

Deposits for a girl child

A Practical Allocation Example

An individual with ₹1,50,000 available to invest might split it as: ₹50,000 EPF (already deducted from salary), ₹50,000 ELSS (for growth potential), ₹30,000 life insurance premium, ₹20,000 children’s tuition fees — filling the full ₹1.5 lakh limit using a mix of mandatory (EPF) and voluntary instruments.

Common Mistakes

•             Double-counting EPF: Your employer’s EPF contribution is not eligible — only your own (employee) contribution counts.

•             Ignoring the lock-in periods: ELSS (3 years), PPF (15 years), tax-saving FDs (5 years) — withdrawing early can trigger reversal of the tax benefit in some cases.

•             Assuming this applies under the new regime: It doesn’t. If you’ve opted for the new regime, none of these investments reduce your taxable income (though they may still be worthwhile purely as savings/investment vehicles).

Frequently Asked Questions

Q1. Can I claim more than ₹1.5 lakh by combining multiple instruments? No — ₹1,50,000 is a combined ceiling across all Schedule XV items put together, not per instrument.

Q2. Is the NPS employee contribution also part of this ₹1.5 lakh limit? The standard NPS contribution by the employee falls within the ₹1.5 lakh Section 123 limit, but there’s a separate, additional deduction of up to ₹50,000 for NPS under a different provision, over and above this limit.

Q3. If I don’t use the full ₹1.5 lakh, can I carry forward the unused portion to next year? No — Section 123 (like the old 80C) operates strictly on a financial-year basis. Unused limit doesn’t carry forward.

Reflects the position for Tax Year 2026-27 under the old tax regime. Always verify individual instrument rules with the relevant financial institution.