Section 80C Deduction: Rs. 1.5 Lakh Limit, Eligible Investments and New Section 123
The familiar Section 80C deduction remains relevant for income earned up to 31 March 2026. From Tax Year 2026-27, the corresponding specified-savings deduction is governed by Section 123 read with Schedule XV of the Income Tax Act, 2025.
Updated for the law applicable from 1 April 2026.
What is the specified-savings deduction?
The provision allows qualifying taxpayers to deduct eligible savings, investments and specified payments from gross total income when the applicable tax regime permits the deduction. It is designed to cover items such as life insurance premium, provident fund contributions, certain notified savings instruments, tuition fees and qualifying payments relating to a residential house.
Section 80C of the 1961 Act and Section 123 of the 2025 Act
| Period | Applicable law | Relevant provision |
|---|---|---|
| FY 2025-26 / AY 2026-27 and earlier | Income Tax Act, 1961 | Section 80C, read with the related Chapter VI-A provisions including Section 80CCE |
| Tax Year 2026-27 onward | Income Tax Act, 2025 | Section 123 read with Schedule XV |
The new Act reorganises the old provision rather than removing the basic specified-savings benefit. Schedule XV now contains the qualifying payments and investments associated with Section 123.
Common eligible investments and payments
Subject to the detailed statutory conditions, the principal categories historically covered by Section 80C and carried into the corresponding framework include:
- Life insurance premium for eligible persons.
- Employee contribution to recognised provident fund and qualifying provident fund contributions.
- Public Provident Fund and other notified government savings schemes, where applicable.
- National Savings Certificates and other notified savings certificates.
- Eligible annuity plans and specified pension-related payments.
- Eligible units or notified tax-saving investment schemes, including qualifying equity-linked savings arrangements.
- Five-year tax-saving term deposits with eligible banks.
- Eligible five-year post office time deposits and specified small-savings deposits.
- Tuition fees for full-time education, subject to the statutory conditions.
- Qualifying principal repayment and specified acquisition expenses for residential house property.
Eligibility depends on the exact instrument, holder, lock-in period, notification and payment conditions. A payment should not be treated as deductible merely because it is marketed as a savings product.
Maximum deduction
The aggregate deduction for the specified savings basket is generally capped at Rs. 1,50,000. Under the 1961 Act, the overall ceiling operates with the related provisions including Section 80CCE. Under the 2025 Act, Section 123 retains the Rs. 1.5 lakh aggregate deduction structure for specified savings.
The limit is an overall ceiling, not a separate Rs. 1.5 lakh deduction for every investment category.
Old tax regime versus new tax regime
The default concessional or new tax regime does not permit this specified-savings deduction. A taxpayer who is eligible and wishes to claim the deduction must satisfy the rules for opting out of the default regime and using the regime under which the deduction is available.
For FY 2025-26 / AY 2026-27, this distinction operates under Section 115BAC of the Income Tax Act, 1961. From Tax Year 2026-27, the corresponding new-regime provision is Section 202 of the Income Tax Act, 2025.
Life insurance premium conditions
Under legacy Section 80C, the deductible amount of life insurance premium is subject to a percentage of the actual capital sum assured. Broadly, policies issued on or before 31 March 2012 were subject to a 20 percent threshold, while policies issued on or after 1 April 2012 generally use a 10 percent threshold. A 15 percent threshold applies in specified cases involving a person with disability or severe disability or a person suffering from a prescribed disease or ailment, subject to the statutory conditions.
The person insured and the relationship with the taxpayer must also fall within the persons permitted by the applicable provision.
Housing loan principal and residential house conditions
Qualifying payments toward purchase or construction of residential house property can include eligible instalments or principal repayment to specified lenders and, where the statutory conditions are met, stamp duty and registration expenses. Interest on a housing loan is not a Section 80C principal-repayment deduction and is governed separately by the provisions relating to income from house property.
Under legacy Section 80C, transfer of the house before expiry of five years from the end of the financial year in which possession is obtained can trigger withdrawal of the earlier benefit in accordance with the provision.
Tuition fees
Legacy Section 80C permits qualifying tuition fees paid to a university, college, school or other educational institution situated in India for full-time education of up to two children of an individual. Development fee, donation and payments of a similar nature are excluded. The corresponding current deduction should be checked against Schedule XV of the 2025 Act for the relevant tax year.
Documents and ITR reporting
Keep evidence supporting the deduction, such as policy details, investment certificates, contribution statements, tuition-fee receipts, loan statements and proof of eligible housing payments. For AY 2026-27, the Income Tax Department requires taxpayers claiming Section 80C to provide the eligible amount and the policy number or document identification number, as applicable, in the return.
Do not claim an amount solely on the basis of an investment declaration submitted to an employer. The final deduction must satisfy the law applicable to the relevant year and should be supported by the required records.
Legacy Section 80C: important statutory points
For FY 2025-26 / AY 2026-27 and earlier years, Section 80C of the Income Tax Act, 1961 applies. It allows an individual or Hindu undivided family a deduction for qualifying sums paid or deposited during the previous year, subject to the statutory ceiling and conditions. The section contains detailed rules for insurance, provident funds, annuities, notified securities and deposits, savings certificates, specified mutual-fund or pension arrangements, tuition fees, residential house payments, tax-saving deposits and other notified investments.
Legacy Section 80C also contains reversal or taxation rules where specified investments or arrangements are terminated, withdrawn or transferred before prescribed periods. Taxpayers dealing with an earlier year should therefore apply the text of the 1961 Act relevant to that year rather than relying only on the current 2025 Act numbering.
Frequently asked questions
Is Section 80C still valid in 2026?
Yes, for FY 2025-26 / AY 2026-27 and earlier periods governed by the Income Tax Act, 1961. For Tax Year 2026-27 beginning 1 April 2026, the corresponding deduction is under Section 123 read with Schedule XV of the Income Tax Act, 2025.
Can I claim Rs. 1.5 lakh under Section 80C in the new tax regime?
No. The specified-savings deduction is not available under the default new tax regime. The applicable regime-selection rules must be checked for the relevant year.
Are home-loan interest and principal both covered?
No. Eligible principal repayment may fall within the specified-savings deduction, subject to conditions. Interest is dealt with separately under the provisions governing income from house property.
Note: This page is a general legal and tax information guide. Eligibility can depend on the tax year, tax regime, instrument terms, statutory notifications and individual facts.