Income Tax Bill 2025: SSY, NPS, EPF and ELSS Deductions Now Under Section 123

Finance Minister Nirmala Sitharaman introduced the Income Tax Bill 2025 in the Lok Sabha on February 13, 2025. This new bill will replace the Income Tax Act of 1961 and is set to come into effect on April 1, 2026.

Restructuring of Tax Deductions

One of the major changes in the new bill is the reorganisation of tax deductions. Deductions previously available under Section 80C of the Income Tax Act have now been moved to a new section, Clause 123. This shift aims to simplify the tax process for taxpayers by making it clearer and more organised.

Deduction Limit Remains the Same

The deduction limit under Clause 123 will remain at ₹1.5 lakh per financial year. This cap continues from the previous Section 80C.

Eligible Investments and Expenditures for Deductions

The following investments and expenses now qualify for deductions under Clause 123:

Life Insurance & Annuity Plans

• Premiums for life insurance policies
• Contributions to deferred annuity contracts (except annuity plans)
• Deductions for securing deferred annuities for spouses or children (up to 20% of salary)

Provident Fund and Pension Schemes

• Employee contributions to provident funds and superannuation funds
• Contributions to pension funds regulated by the National Housing Bank
• Contributions to the National Pension Scheme (NPS)

Government-Sponsored Savings Schemes

• Investments in schemes like Sukanya Samriddhi Yojana, National Savings Certificates (NSC), and Senior Citizen Savings Scheme

Equity & Market-Linked Investments

• Investments in Equity-Linked Savings Schemes (ELSS) and Unit-Linked Insurance Plans (ULIPs)

Education and Housing

• Tuition fees for up to 2 children in recognised institutions
• Investments in residential property for generating taxable income

Other Significant Revisions in the Income-Tax Bill, 2025

• Over 300 outdated provisions, including Section 80CCA (National Saving Scheme) and Section 80CCF (long-term infrastructure bond deductions), have been eliminated.
• Deductions for life insurance premiums, provident fund contributions, and deferred annuities are now part of Clause 123.
• Home loan interest deductions are divided into Clauses 130 and 131.
• Education loan interest deductions are moved to Clause 129.
• Pension scheme contributions are now categorised under Clause 124.
• Deductions for the Agnipath Scheme are included under Clause 125.

Taxpayers are advised to stay informed about any further changes to ensure compliance with the new provisions.

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