Table of Contents
Introduction
Section 80C of the Income Tax Act, 1961, remains the most popular tax-saving tool for individuals and Hindu Undivided Families (HUFs) in India. While it allows for a deduction of up to ₹1.5 lakh annually, its relevance has shifted in 2025. With the New Tax Regime now being the default and offering tax-free income up to ₹12.75 lakh
Understanding Section 80C:
The primary objective of Section 80C is to encourage long-term savings and investments in productive economic avenues. However, as of the 2025-26 fiscal year, taxpayers face a critical choice:
Old Tax Regime: You can claim the full ₹1.5 lakh deduction under 80C to lower your taxable income.
New Tax Regime (Default): You cannot claim Section 80C deductions. Instead, you benefit from lower tax slabs and a higher standard deduction of ₹75,000.
Key Provisions and Investment Avenues
If you opt for the Old Tax Regime, you can combine multiple investments and eligible expenses to claim deductions up to the ₹1.5 lakh limit under Section 80C. The most commonly used options are outlined below:
Market-linked investments: Instruments such as Equity Linked Savings Schemes (ELSS) and Unit Linked Insurance Plans (ULIPs) fall under this category. These typically have a lock-in period ranging from 3 to 5 years and offer growth potential linked to market performance.
Fixed income instruments: Options like Public Provident Fund (PPF), National Savings Certificate (NSC), tax-saving fixed deposits, and Sukanya Samriddhi Yojana (SSY) provide relatively stable returns with lock-in periods ranging from 5 to 15 years.
Retirement-focused investments: Contributions to the Employee Provident Fund (EPF) and the National Pension System (NPS)* qualify under this category and are generally locked in until retirement, making them suitable for long-term retirement planning.
Eligible expenses: Certain expenses such as home loan principal repayment and children’s tuition fees are also eligible for deduction under Section 80C and do not carry a specific lock-in period.
This flexibility allows taxpayers to structure their investments and expenses strategically while optimising tax savings under the Old Tax Regime.
Note: While Section 80C is capped at ₹1.5 lakh, you can claim an additional ₹50,000 deduction for NPS contributions under Section 80CCD(1B), bringing the total potential deduction to ₹2 lakh in the Old Regime.
Eligibility and Strategic Implications
Default Status: Since the New Tax Regime is the default, you must specifically inform your employer or select the “Old Regime” while filing your ITR to use 80C benefits.
The “Break-even” Point: In 2025, the Old Regime (with 80C) is generally only beneficial if your total deductions (80C, HRA, Home Loan Interest, etc.) exceed ₹4.25 lakh to ₹5 lakh, depending on your income bracket.
Lock-in Requirements: Most 80C investments come with mandatory lock-in periods (e.g., 3 years for ELSS, 15 years for PPF). Investors must align these with their liquidity needs.
Important Exclusions
Taxpayers often mistake certain expenses for 80C deductions. The following are not eligible:
Home Loan Interest: This is claimed under Section 24(b) (up to ₹2 lakh).
Health Insurance: Premiums for health insurance fall under Section 80D.
Short-term FDs: Only Fixed Deposits with a tenure of 5 years or more qualify.
Self-Contribution to EPF: Only the employee’s contribution is counted toward the ₹1.5 lakh limit; the employer’s contribution is handled separately.
Conclusion
In the 2025 tax landscape, Section 80C is no longer a “one-size-fits-all” solution. While it remains a powerful tool for wealth creation through PPF and ELSS, its tax-saving utility must be weighed against the simplified, lower-rate New Tax Regime. For middle-income earners, the New Regime’s rebate (making income up to ₹12 lakh tax-free) often outweighs the benefits of 80C.
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.