Section 80C of the Income Tax Act: Deduction Limit, Eligible Investments and Section 123 Update

For years, Section 80C was the reference point for tax deductions linked to investments such as PPF, ELSS, provident fund contributions, and life insurance premiums. That reference changed when the Income-tax Act, 2025 came into effect from April 1, 2026.

The comparable provision is now Section 123. It allows individuals and Hindu Undivided Families (HUFs) to deduct eligible amounts paid or deposited during a tax year, up to an aggregate limit of ₹1.5 lakh. Schedule XV of the new Act lists the qualifying payments.

The change is mainly in the legal framework and numbering. The Income Tax Department has clarified that the basic deduction for specified savings instruments remains broadly unchanged in substance.

Key Takeaways

• Section 80C belonged to the Income-tax Act, 1961. Section 123 is the corresponding provision under the Income-tax Act, 2025.
• The aggregate deduction remains capped at ₹1.5 lakh for a tax year.
• Life insurance premiums, provident fund contributions, certain mutual fund investments, specified deposits, tuition fees, and qualifying housing payments are among the amounts covered under Schedule XV.
• The Section 123 deduction is not available while computing income under the new tax regime under Section 202.
• NPS has to be read across both Section 123 and Section 124, depending on the type of contribution.

What Happened to Section 80C After 1 April 2026?

Section 80C formed part of the Income-tax Act, 1961. With the introduction of the Income-tax Act, 2025, the provision was reorganised rather than simply carried forward with the same number.

For tax year 2026-27 onwards, Section 123 deals with deductions for life insurance premiums, provident fund contributions, and several other specified payments. Schedule XV contains the detailed list.

The Income Tax Department describes the new provision as structurally similar to the earlier Section 80C read with Section 80CCE and confirms that the ₹1.5 lakh limit has been retained.

Section 80C Vs Section 123

Basis	Earlier Provision	Current Provision
Act	Income-tax Act, 1961	Income-tax Act, 2025
Section	Section 80C	Section 123
Maximum aggregate deduction	₹1.5 lakh	₹1.5 lakh
Eligible taxpayers	Individuals and HUFs	Individuals and HUFs
Qualifying payments	Listed under the earlier Act	Listed in Schedule XV
New tax regime	Generally unavailable	Not available under Section 202

The old name may still appear in older investment documents, articles, or discussions because Section 80C was used for more than two decades. For current tax-year references, however, Section 123 is the relevant provision.

Who Can Claim the Deduction?

Section 123 applies to an individual or a Hindu Undivided Family. The provision itself does not restrict eligibility only to resident individuals.

This means an NRI may also fall within the section where the underlying payment qualifies. The rules of the investment product still matter. Some savings schemes may separately restrict who can open or continue an account.

Companies, partnership firms, and other entities do not receive the Section 123 deduction merely because they make similar investments.

Investments and Payments Covered Under Section 123

Schedule XV contains a long list of qualifying payments. For most taxpayers, a smaller set of commonly used investments and expenses is likely to be more relevant.

Life Insurance Premiums

Premiums paid towards qualifying life insurance policies may be included within the deduction.

For an individual, the policy may cover the individual, their spouse, or a child. In the case of an HUF, qualifying premiums may relate to a policy on the life of a member.

The deductible amount is governed by the conditions attached to the policy under Schedule XV. Merely paying a life insurance premium does not make the entire premium eligible in every case.

Public Provident Fund and Provident Fund Contributions

Specified provident fund contributions continue within the deduction framework.

This includes eligible contributions to recognised provident funds and qualifying deposits under the Public Provident Fund framework. The amount claimed forms part of the same ₹1.5 lakh annual ceiling rather than receiving a separate limit.

Equity Linked Savings Scheme

Investments in qualifying notified mutual fund schemes, including ELSS, can form part of the deduction.

ELSS differs from fixed-return savings products because the money is invested in the equity market. Returns depend on market performance. ELSS also has a three-year lock-in period.

The tax deduction applies to the qualifying investment amount. Taxation when the units are eventually redeemed follows the capital gains provisions applicable at that time.

National Savings Certificate

Subscriptions to notified savings certificates are also among the specified investments covered by the deduction framework.

NSC has a fixed tenure and an interest component. The amount invested may qualify for deduction, while the treatment of the interest is determined separately under the tax rules.

Tax-Saving Fixed Deposits

Specified term deposits with scheduled banks may qualify where the deposit follows the notified tax-saving scheme and carries the required lock-in period.

A deduction on the deposit amount does not make the interest from the fixed deposit tax-free. Interest remains subject to the tax treatment applicable to such income.

Sukanya Samriddhi and Other Notified Savings Schemes

Payments into qualifying government-notified savings schemes may also fall within Schedule XV.

Product-level rules, including who can open the account, contribution limits, and withdrawal conditions, continue to apply independently of the income-tax deduction.

Senior Citizens Savings Scheme

Eligible deposits under notified senior citizen savings arrangements may be considered within the overall deduction limit.

Interest received from the scheme has its own tax treatment. The deduction relates to the qualifying deposit and should not be confused with the taxation of subsequent income.

Tuition Fees

Section 123 is not limited to financial investments.

Qualifying tuition fees paid for the full-time education of children can also be included.

Schedule XV continues the broad treatment available under the earlier law, while excluding payments such as development fees or donations from the tuition-fee deduction.

The Income Tax Department has also confirmed that tuition fees remain among the qualifying payments under the new framework.

Home Loan Principal and Certain Property Payments

Specified payments towards the purchase or construction of a residential house may qualify.

This can include eligible principal repayment on a housing loan as well as certain amounts connected with the purchase of the property, where the conditions in Schedule XV are met.

Home loan interest is a separate tax item. It should not be added to the Section 123 deduction simply because the principal component qualifies.

How Does the ₹1.5 Lakh Limit Work?

The ₹1.5 lakh ceiling applies to the combined total of qualifying payments made during the tax year.

Suppose a taxpayer has:

• ₹75,000 in eligible provident fund contributions
• ₹35,000 invested in PPF
• ₹60,000 invested in ELSS

The total comes to ₹1.70 lakh. The deduction under Section 123 would still be capped at ₹1.5 lakh.

Adding another eligible product does not create another ₹1.5 lakh limit. Section 123 specifically applies the ceiling to the aggregate of the qualifying amounts listed in Schedule XV.

Where Does NPS Fit Under the New Act?

NPS requires a little more care because all contributions do not sit under one provision.

Schedule XV includes specified contributions made by an individual to a notified Central Government pension scheme.

Broadly, the qualifying amount is linked to salary for employees and gross total income for other individuals. This amount forms part of the Section 123 framework and therefore interacts with the ₹1.5 lakh ceiling.

Section 124 separately covers pension-scheme deductions, including the additional deduction of up to ₹50,000 for qualifying individual contributions and deductions relating to employer contributions.

The section also prevents the same contribution from being claimed twice under Sections 123 and 124.

So, describing NPS simply as a “Section 123 investment” or saying that it sits entirely outside Section 123 would both miss part of the current structure.

Is Section 123 Available Under the New Tax Regime?

Taxpayers computing their income under the new tax regime under Section 202 cannot claim the Section 123 deduction.

The Income Tax Department has specifically confirmed this while explaining the transition from the old Act to the Income-tax Act, 2025.

Section 202 is the default tax regime for eligible taxpayers under the new Act. A taxpayer's choice of tax regime can affect whether eligible investments or payments produce a deduction under Section 123.

This is separate from whether the investment itself can be made. A person may hold a PPF account, ELSS units, or another eligible product even where no Section 123 deduction is being claimed.

Deduction and Tax-Free Returns Are Different

One common source of confusion around the earlier Section 80C was the assumption that an investment qualifying for deduction would also produce tax-free income.

That is not a general rule. A tax-saving fixed deposit, for example, may qualify at the investment stage while its interest is taxable.

ELSS gains are governed by the applicable capital gains provisions. Insurance proceeds depend on the conditions attached to the policy and the exemption rules in force.

Some products may receive favourable treatment at more than one stage, but that comes from the rules governing those products rather than Section 123 alone.

Points to Check Before Claiming the Deduction

The name of the investment is only one part of the eligibility test. The tax treatment can also depend on how the payment was made and whether the conditions attached to the product have been met.

Useful details to check include:

• Whether the investment or expense appears in Schedule XV
• Who made the payment
• Whose name or life the payment relates to, where relevant
• Whether the prescribed holding period or lock-in applies
• How much of the ₹1.5 lakh limit has already been used
• Which tax regime applies for the year.

These checks become especially relevant where several investments and expenses are being combined within the same annual limit.

Conclusion

Section 80C remains an important search term because it was the familiar tax-saving provision under the Income-tax Act, 1961. For tax year 2026-27 onwards, the corresponding deduction is found under Section 123 of the Income-tax Act, 2025.

The ₹1.5 lakh aggregate limit continues, and many familiar items such as life insurance premiums, provident fund contributions, specified mutual fund investments, tuition fees, and qualifying housing payments remain within the framework.

The section number is not the only thing worth checking. Product conditions, the type of payment, and the tax regime being used can all affect whether a deduction is available.