Section 80C New Section Number
Taxpayers searching for the Section 80C new section number under direct tax legislation will find it codified as Section 123 of the Income-tax Act 2025. The Income-tax Act 2025 replaced the Income-tax Act 1961 on 1 April 2026. While the statutory deduction ceiling remains ₹1,50,000 per financial year, the eligible investments and payments are now specified under Schedule XV. This blog outlines the transition from Section 80C to Section 123, the qualifying investment categories, regime eligibility, and the mathematical break-even point against the default New Tax Regime.
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The short version:
Section 80C of the Income-tax Act 1961 is replaced by Section 123 of the Income-tax Act 2025
The statutory deduction limit remains capped at ₹1,50,000 per financial year
Qualifying instruments and expenditures are cataloged under Schedule XV of the 2025 Act
Section 123 deductions apply exclusively under the Old Tax Regime; the New Tax Regime excludes them
Salaried taxpayers in the default New Tax Regime receive a ₹75,000 standard deduction and Section 87A rebate covers taxable income up to ₹12,00,000, making salary income up to ₹12,75,000 tax-free for eligible resident individuals
Prescribed regime opt-out forms are mandatory only for individuals with business or professional income; salaried filers choose directly in their annual return
Section 80C new section number under the Income-tax Act 2025
Statutory provisions under Section 123 of the Income-tax Act 2025 replace the historical deduction framework previously governed by Section 80C of the Income-tax Act 1961. The annual deduction limit remains ₹1,50,000 per financial year, with qualifying investments and payments cataloged under Schedule XV of the updated tax legislation for eligible individuals.
The transition from the 1961 Act to the Income-tax Act 2025 restructured direct tax sections across India. For decades, Section 80C served as the primary deduction mechanism for individual taxpayers and Hindu Undivided Families (HUFs).
Under the current legal structure, taxpayers identifying the Section 80C new section number must refer to Section 123 during tax planning and annual filings.
The essential statutory mechanics carry forward into the 2025 Act:
Statutory Limit: You can claim a deduction of up to ₹1,50,000 from gross total income in a financial year.
Eligible Entities: Only individuals and Hindu Undivided Families can claim relief under Section 123. Companies, partnership firms, and limited liability partnerships are excluded.
Regime Restriction: Section 123 deductions are permitted only if you elect to file under the Old Tax Regime. The default New Tax Regime disallows these deductions.
The Income Tax Department assesses eligibility based on payments made during the relevant financial year between 1 April and 31 March.
Categories of eligible investments under Schedule XV
Categories listed in Schedule XV of the Income-tax Act 2025 define the qualifying instruments eligible for deduction under Section 123. The schedule encompasses market-linked tax-saving mutual funds, statutory provident funds, sovereign savings certificates, life insurance premiums, tuition fees, and home loan principal repayments, while excluding senior citizen deposits up to the aggregate limit.
Schedule XV groups eligible deductions into market-linked instruments, government-backed savings securities, social security contributions, and specified household expenditures:
| Investment or Payment Category | Permitted Instrument | Minimum Tenure or Statutory Lock-In |
|---|---|---|
| Market-Linked Mutual Funds | ELSS funds (Equity Linked Savings Schemes) | 3 years mandatory lock-in per installment |
| Retirement & Provident Funds | Employees’ Provident Fund (EPF), Public Provident Fund (PPF) | 15 years for PPF (partial withdrawals permitted under rules) |
| Small Savings Schemes | National Savings Certificate (NSC) | 5 years |
| Girl Child Sovereign Scheme | Sukanya Samriddhi Yojana (SSY) | Deposits for 15 years; maturity at 21 years |
| Banking Deposits | Tax-saving fixed deposits with scheduled banks | 5 years lock-in (no premature encashment or loan lien) |
| Life Insurance Protection | Life insurance policy premiums | Must not exceed 10% of sum assured (15% for specified disability) |
| Residential Real Estate | Principal repayment on housing loan, stamp duty and registration | 5 years retention of property from end of possession financial year |
| Education Outlays | Tuition fees for full-time education in India | Maximum two children per individual taxpayer |
Equity Linked Savings Schemes (ELSS)
ELSS funds are diversified equity mutual fund schemes that dedicate at least 80 percent of their portfolio to equities under SEBI guidelines. They carry a three-year lock-in period, which is the shortest mandatory holding tenure among all Schedule XV avenues. To explore how equity allocation rules apply, read our detailed blog on ELSS funds.
Provident Funds and Small Savings
Eligible employee contributions deducted from monthly salaries toward a recognised provident fund count toward the Section 123 limit under the Old Tax Regime. Voluntary deposits into the Public Provident Fund can be made in increments up to ₹1,50,000 per financial year. For Sukanya Samriddhi Yojana, deposits are permitted for up to 15 years from account opening, with the account maturing after 21 years.
Five-Year Bank Term Deposits
Scheduled commercial banks offer designated five-year tax-saving fixed deposits. These deposits cannot be pledged as collateral for loans, and premature closure is prohibited during the five-year lock-in.
Household Expenses: Housing Principal and Tuition
Section 123 is not limited to financial investments. It accommodates two common household cash outflows:
Home Loan Principal: Repayments toward the principal component of a housing loan taken from a bank or housing finance company qualify once construction is complete. Stamp duty and registration charges paid during property acquisition can also be claimed in the financial year of purchase.
Tuition Fees: Fees paid for full-time education at any university, college, school, or educational institution situated in India qualify for up to two children per individual taxpayer. Development fees, transport charges, hostel expenses, and private coaching fees do not qualify.
Section 123 limits and the ₹1.5 lakh statutory cap
Deduction limits enforce an overall annual ceiling of ₹1,50,000 across all qualifying investments and expenditures combined under Section 123 of the Income-tax Act 2025. Investing across multiple eligible avenues does not expand the allowable relief, as the statutory threshold caps the total deduction claimable within a single financial tax year.
The ₹1,50,000 ceiling applies as an aggregate limit, not a per-instrument allowance.
For instance, consider a taxpayer who incurs the following qualifying outlays in a single financial year:
Eligible EPF employee deductions: ₹72,000
ELSS mutual fund investments: ₹60,000
Children’s school tuition fees: ₹50,000
Home loan principal repayment: ₹80,000
The arithmetic sum of these outlays equals ₹2,62,000. However, under Section 123 of the Income-tax Act 2025, the maximum deduction permitted against gross total income remains ₹1,50,000. The remaining ₹1,12,000 yields no additional tax reduction and cannot be carried forward to subsequent financial years.
Taxpayers should evaluate their non-negotiable cash outflows (such as mandatory EPF deductions and school tuition) before committing additional discretionary capital to instruments with long lock-in periods solely for tax relief.
Old Tax Regime vs New Tax Regime: where Section 123 applies
Tax regime choices determine whether taxpayers can claim deductions under Section 123 of the Income-tax Act 2025, which corresponds to erstwhile Section 80C. Section 123 deductions are available exclusively under the optional Old Tax Regime, while the default New Tax Regime provides lower baseline slab rates and a higher rebate threshold.
The direct tax framework operates under two alternative systems:
| Parameter | New Tax Regime (Default) | Old Tax Regime (Optional) |
|---|---|---|
| Status under Law | Default tax system for all individuals | Optional system requiring specific election |
| Section 123 Deductions (Old 80C) | Nil (Not permitted) | Permitted up to ₹1,50,000 per year |
| Standard Deduction (Salaried) | ₹75,000 | ₹50,000 |
| Section 87A Tax Rebate Limit | Taxable income up to ₹12,00,000 (Max rebate ₹60,000) | Taxable income up to ₹5,00,000 (Max rebate ₹12,500) |
| Effective Zero-Tax Threshold (Salaried) | ₹12,75,000 (Salary income) | ₹5,50,000 (Salary income) |
| Tax Slabs | Concessional, wider progressive intervals | Steeper slab rates reaching 30% above ₹10 lakh |
Under the New Tax Regime, Parliament structured tax slabs to lower marginal rates across middle-income brackets while eliminating most itemized deductions. Taxpayers who choose the New Tax Regime surrender their claims under Section 123, health insurance deductions, and self-occupied housing loan interest.
For an eligible resident individual earning ordinary salary income, the New Tax Regime provides a standard deduction of ₹75,000. If taxable income does not exceed ₹12,00,000, Section 87A rebate offsets tax liability up to ₹60,000 entirely, resulting in zero tax liability on gross salary income up to ₹12,75,000 (assuming no special-rate income).
Understanding broader tax rates and slab distributions is critical when selecting an operational filing framework. Review our blog on income tax rules to evaluate historical and current slab structures.
Break-even calculations: when the Old Regime saves more tax
Calculations for break-even points identify the total deductions an individual must claim to make the Old Tax Regime mathematically advantageous over the New Tax Regime. For salaried earners with ₹15 lakh income, total deductions must reach approximately ₹5.94 lakh before the Old Tax Regime produces a lower aggregate tax liability.
Because the New Tax Regime offers lower slab rates and a higher standard deduction of ₹75,000, claiming the ₹1,50,000 Section 123 deduction alone is not sufficient to justify opting into the Old Tax Regime at higher salary levels.
To illustrate, consider a salaried individual with a gross annual salary of ₹15,00,000 in FY 2026-27:
| Income and Deduction Parameter | New Tax Regime (Default) | Old Tax Regime (With Full Deductions) |
|---|---|---|
| Gross Annual Salary | ₹15,00,000 | ₹15,00,000 |
| Standard Deduction | ₹75,000 | ₹50,000 |
| Section 123 (Erstwhile Section 80C) | Not applicable | ₹1,50,000 |
| NPS Contribution (Erstwhile 80CCD(1B)) | Not applicable | ₹50,000 |
| Health Insurance (Erstwhile Section 80D) | Not applicable | ₹25,000 |
| Home Loan Interest (Erstwhile Section 24(b)) | Not applicable | ₹2,00,000 |
| Total Deductions Claimed | ₹75,000 | ₹4,75,000 |
| Net Taxable Income | ₹14,25,000 | ₹10,25,000 |
| Tax Calculation by Slabs | ||
| Slab 1 | ₹4L–₹8L (5%): ₹20,000 | ₹2.5L–₹5L (5%): ₹12,500 |
| Slab 2 | ₹8L–₹12L (10%): ₹40,000 | ₹5L–₹10L (20%): ₹1,00,000 |
| Slab 3 | ₹12L–₹14.25L (15%): ₹33,750 | >₹10L (30% on ₹25k): ₹7,500 |
| Calculated Base Tax | ₹93,750 | ₹1,20,000 |
| Health & Education Cess (4%) | ₹3,750 | ₹4,800 |
| Total Tax Payable | ₹97,500 | ₹1,24,800 |
Under these stated assumptions, the New Tax Regime results in a tax liability of ₹97,500, whereas the Old Tax Regime results in ₹1,24,800. The New Tax Regime saves ₹27,300, even when the taxpayer claims ₹4,75,000 in aggregate deductions under the Old Regime.
To find the mathematical break-even point at a ₹15,00,000 gross salary:
New Tax Regime base tax is ₹93,750.
To produce an equivalent base tax of ₹93,750 under the Old Tax Regime, taxable income must be approximately ₹9,06,250 (since tax on ₹5,00,000 is ₹12,500, and the remaining ₹81,250 tax requires ₹4,06,250 in the 20 percent slab).
Subtracting ₹9,06,250 from gross salary of ₹15,00,000 reveals that total deductions must reach approximately ₹5,93,750 (around ₹5.94 lakh), including the ₹50,000 standard deduction.
This break-even threshold varies based on specific circumstances, such as additional House Rent Allowance (HRA) exemptions or higher medical deductions for senior citizen parents.
Allowances and deductions beyond the Section 123 ceiling
Allowances outside Section 123 provide supplemental tax deductions that taxpayers under the Old Tax Regime can combine with the basic ₹1,50,000 investment cap. These statutory provisions include employee contributions to the National Pension System, health insurance premium payments, and interest paid on housing loans for self-occupied residential property under direct tax rules.
Taxpayers aiming to construct an efficient Old Regime tax plan combine Section 123 with other specific provisions of the direct tax code:
1. National Pension System (NPS) Employee Contribution
Under the pension framework corresponding to erstwhile Section 80CCD(1B) of the 1961 Act, individual taxpayers can claim an additional deduction of up to ₹50,000 for voluntary deposits into an NPS Tier-1 account. This ₹50,000 allowance operates exclusively over and above the ₹1,50,000 Section 123 ceiling, enabling an aggregate retirement savings deduction of ₹2,00,000 under the Old Tax Regime. For an overview of subscription rules, read our page on national pension scheme nps.
2. Employer Contribution to NPS
Contributions made by an employer toward an employee’s NPS account under provisions corresponding to erstwhile Section 80CCD(2) qualify for deductions subject to statutory limits:
New Tax Regime: Deductions are allowed up to 14 percent of salary (basic pay plus dearness allowance) for Central and State Government employees, as well as private sector employees.
Old Tax Regime: Deductions are permitted up to 14 percent of salary for government employees, while private sector employer contributions are capped at 10 percent of salary.
3. Medical Insurance Premiums
Health insurance deductions corresponding to erstwhile Section 80D permit relief on medical insurance premiums under the Old Tax Regime:
Up to ₹25,000 for self, spouse, and dependent children.
An additional ₹25,000 for parents (rising to ₹50,000 if parents are senior citizens aged 60 or above).
Preventive health check-up costs up to ₹5,000 within the overall limits.
4. Home Loan Interest on Self-Occupied Property
Interest paid toward a home loan for a self-occupied residential property qualifies for a deduction of up to ₹2,00,000 per financial year under provisions corresponding to erstwhile Section 24(b). This relief operates independently of Section 123 principal deductions, but applies only under the Old Tax Regime.
These income deductions reduce gross salary or business earnings before final tax assessment. They cannot be used to offset capital gains arising from shares or real estate, which are taxed under separate statutory schedules.
Procedures for tax filing and regime election
Filing procedures establish how taxpayers communicate their tax regime selection to the Income Tax Department during annual tax return submissions. Salaried individuals choose between regimes directly within their annual return forms, whereas taxpayers with income from business or profession must submit the prescribed electronic declaration before the statutory filing deadline.
The administrative mechanism for electing the Old Tax Regime depends on income sources:
Salaried Employees and Pensioners
Individuals earning income from salaries, house property, or other sources (without business or professional earnings) enjoy annual flexibility:
Direct Election in Return: Salaried individuals do not need to file a separate advance form before the financial year.
Annual Selection: You can choose the New Tax Regime in one financial year and switch to the Old Tax Regime in the next financial year, based on which system results in lower tax for that specific period.
Selection Mechanism: The election is made simply by selecting the appropriate regime option while preparing your Income Tax Return on the e-filing portal before the statutory filing deadline.
Individuals with Business or Professional Income
Taxpayers with earnings derived from a proprietary business, partnership firm, or freelance professional practice face more restrictive switching rules:
Prescribed Declaration: To opt out of the default New Tax Regime, business filers must submit the prescribed statutory electronic form (corresponding to Form 10-IEA under the 1961 Act framework) on or before the due date specified under Section 139(1) of the Act.
Switching Constraints: If an individual with business income opts out of the New Tax Regime to claim Section 123 deductions, they are permitted only one opportunity to opt back into the New Tax Regime. Once they return to the New Tax Regime, they cannot switch back to the Old Tax Regime in future years as long as business income continues.
Failing to submit the prescribed electronic declaration before the Section 139(1) due date forces business filers into the default New Tax Regime, resulting in the disallowance of all Section 123 claims for that assessment year.
Documentation rules, statutory limits and deduction clawbacks
Documentation standards require taxpayers to maintain valid receipts and comply with statutory holding tenures when claiming deductions under Section 123. Premature property transfers, early policy surrenders, or non-compliant tuition receipts can trigger statutory clawback provisions, reversing earlier tax relief and adding disallowed amounts back into taxable income during assessment.
When claiming relief under Section 123, taxpayers must maintain compliant documentary proof and adhere to statutory terms:
1. Life Insurance Premium Ratios and Exceptions
Under direct tax rules, life insurance policies issued on or after 1 April 2012 qualify for deductions only if the annual premium paid does not exceed 10 percent of the minimum capital sum assured. However, a statutory exception applies: for policies issued to individuals with severe disabilities or specified illnesses under the direct tax code, premium payments qualify up to 15 percent of the sum assured.
2. Pre-Mature Liquidation and Statutory Clawback Rules
Instruments under Schedule XV enforce holding requirements to retain tax benefits:
ELSS Units: Cannot be redeemed before the completion of 36 months from the allotment date. In Systematic Investment Plans (SIP), each monthly installment carries its own independent three-year lock-in.
Residential Property Clawback: If you claim home loan principal repayments under Section 123 and subsequently transfer or sell the residential property within five years from the end of the financial year in which possession was obtained, the aggregate deductions previously allowed are deemed to be taxable income of the financial year in which the transfer occurs.
Bank Fixed Deposits: Designated five-year tax-saving deposits cannot be closed prematurely or pledged as collateral during the five-year tenure.
3. Excluded Education Expenditures
Tuition fee claims require formal receipts issued by recognized educational institutions. The deduction applies solely to tuition fees paid for full-time education of up to two children. Development fees, donations, private coaching center charges, transport fees, library deposits, and overseas university tuition are not eligible for deduction under Section 123.
Common Questions
The Section 80C new section number is Section 123 under the Income-tax Act 2025, which replaced the Income-tax Act 1961 on 1 April 2026. The eligible investment instruments and payments are cataloged in Schedule XV of the 2025 Act.
No. The statutory deduction limit under Section 123 remains capped at ₹1,50,000 per financial year for an individual or Hindu Undivided Family, unchanged from the historical ceiling under Section 80C.
No. Deductions under Section 123 are available only under the Old Tax Regime. The default New Tax Regime disallows Section 123 deductions in exchange for lower baseline slab rates and an enhanced Section 87A rebate.
No. Salaried employees without business income do not need to submit a separate advance opt-out form. They can elect the Old Tax Regime directly on their annual income tax return. Advance electronic declarations are required exclusively for taxpayers with income from business or profession.
No. The Senior Citizens Savings Scheme does not qualify as a deductible investment under Section 123 and Schedule XV of the Income-tax Act 2025.
For eligible resident salaried individuals with ordinary income, the zero-tax salary threshold is ₹12,75,000. This includes the ₹75,000 standard deduction and the Section 87A tax rebate covering taxable income up to ₹12,00,000 (maximum rebate ₹60,000).
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.