Section 80C

Section 80C is the provision of the repealed Income-tax Act 1961 that allowed an individual or a Hindu undivided family to deduct up to Rs. 1,50,000 a year paid into life insurance, provident funds, pension schemes, notified savings instruments, tuition fees and home-loan principal. It was repealed with the rest of that Act on 1 April 2026 by Section 536(1) of the Income-tax Act 2025, and the deduction now sits in Section 123 of the 2025 Act, read with the 26 clauses of Schedule XV.

The ceiling did not move in the migration. Section 123 allows “the whole of the amount paid or deposited in the tax year, being the aggregate of the sums enumerated in Schedule XV, as does not exceed Rs. 150000”, the same figure Section 80C carried from the financial year 2014-15. What changed is the architecture: the 1961 Act spread the basket over four sections (80C, 80CCC, 80CCD(1) and the 80CCE cap), and the 2025 Act folds all four into a single section and a single schedule.

For a central government employee the basket usually fills itself through the pay bill. A General Provident Fund subscription is paragraph 1(d), the Central Government Employees Group Insurance Scheme subscription is paragraph 1(c), and the employee’s 10% National Pension System contribution is paragraph 1(y). An NPS employee whose basic pay plus dearness allowance is Rs. 1,25,000 a month, or a GPF subscriber contributing Rs. 12,500 a month, reaches Rs. 1,50,000 before paying a single insurance premium or school fee.

The deduction belongs to the old tax regime alone. Section 202(2)(a)(xii) removes the whole of Chapter VIII from the new regime computation and spares only Sections 124(1), 124(2), 125(2) and 146, so Section 123 is lost the moment the new regime applies. That single rule decides whether anything else on this page matters to a given taxpayer in a given year.

Which provision applies to which tax year

The governing provision follows the year the income belongs to, not the date the return is filed. Section 536(2)(c) of the Income-tax Act 2025 continues the repealed 1961 Act for proceedings “in respect of any tax year beginning before the 1st April, 2026”, including assessment, reassessment, rectification and appeal.

Two further clauses of Section 536(2) carry the old material across. Clause (j) keeps in force any notification, scheme, circular or approval issued under the repealed Act, so far as it is consistent with the 2025 Act, as if issued under the corresponding provision. Every savings scheme the Central Government notified for a Section 80C clause, such as a deposit scheme under clause (viii) or a savings certificate under clause (ix), therefore continues to qualify under the matching Schedule XV paragraph without a fresh notification.

Clause (h), substituted by the Finance Act 2026 before it ever operated, handles deductions whose conditions break after the repeal. A sum allowed for a tax year before 1 April 2026 that the repealed Act would have pulled back into a later year’s income is deemed income of that later year, under the same head. A Section 80C deduction for a house sold within five years, or for a life policy allowed to lapse inside two years, is recaptured even when the breach falls in 2026-27 or later.

The Rs. 1,50,000 ceiling and what it covers

Section 123 is a single aggregate ceiling of Rs. 1,50,000 across every item in Schedule XV. No item carries its own ceiling inside that figure except where a clause sets a percentage limit (20% of salary for the government deduction in paragraph 1(c), 10% of salary for the NPS contribution in paragraph 1(y)).

The 1961 Act reached the same result by a longer route. Section 80C allowed Rs. 1,50,000, Section 80CCC allowed a deduction for pension-fund annuity plans, Section 80CCD(1) allowed the employee’s NPS contribution, and Section 80CCE then capped the aggregate of the three at Rs. 1,50,000. The 2025 Act moves the old Section 80CCC into paragraph 1(x) and Section 80CCD(1) into paragraph 1(y), and Section 123 performs the Section 80CCE job itself.

Three deductions that people commonly lump in with Section 80C sit outside the ceiling and are claimed in addition to it:

The additional NPS deduction and the health insurance deduction are separate old-regime deductions. The employer’s share is the only one of the three that the new regime keeps.

Qualifying items in Schedule XV

Paragraph 1 of Schedule XV lists 26 clauses, lettered (a) to (z). The table maps each to the Section 80C clause, or the separate 1961 section, that it replaced; the correspondence is one to one except at the ends, where paragraph 1(x) and 1(y) absorb Sections 80CCC and 80CCD(1), and paragraph 1(z) merges former clauses (xix) and (xx).

Several clauses turn on a Central Government notification rather than on a named product. The instrument a reader recognises, whether a girl-child savings account, a savings certificate, a tax-saving mutual fund or a five-year bank deposit, qualifies because a notification under the corresponding clause names it, and Section 536(2)(j) keeps each of those notifications alive under the 2025 Act.

Paragraph 1(i) shows the drafting was not a mechanical copy. Section 80C(2)(ix) of the 1961 Act referred to a savings certificate as defined in section 2(c) of the Government Savings Certificates Act, 1959; paragraph 1(i) refers instead to section 3(k) of the Government Savings Banks Act, 1873, the Act into which the savings-certificate provisions were consolidated.

Items specific to central government employees

Four Schedule XV clauses are written for, or bite mainly on, government servants, and three of them are recovered through the pay bill without any action by the employee.

General Provident Fund

A subscription to the General Provident Fund is a contribution to a provident fund to which the Provident Funds Act, 1925 applies, and so qualifies under paragraph 1(d). The fund is open to employees on the old pension scheme, meaning broadly those who joined before 1 January 2004. Because the GPF (Central Services) Rules let a subscriber raise the subscription up to the whole of emoluments, a subscriber can fill the whole Rs. 1,50,000 through GPF alone, and many do.

The accrued interest is a separate question. Schedule II serial 3 of the 2025 Act exempts interest on GPF only so far as it is attributable to contributions not exceeding Rs. 5,00,000 in a year, for a fund with no employer contribution, the successor to the 2021 provisos to Section 10(11). The deduction for subscribing and the exemption of interest are independent, and the first does not depend on the second.

Central Government Employees Group Insurance Scheme

The monthly CGEGIS subscription of Rs. 120 for Group A, Rs. 60 for Group B and Rs. 30 for Group C is a sum deducted from salary payable by the Government to make provision for the employee’s spouse or children. That places it in paragraph 1(c), the successor to Section 80C(2)(iii) of the 1961 Act. The clause caps the amount at 20% of salary, which the subscription never approaches: Rs. 1,440 a year for a Group A officer.

National Pension System, Tier I

The employee’s own 10% contribution to the National Pension System is paragraph 1(y), deductible up to 10% of salary including dearness allowance and excluding all other allowances and perquisites. For an employee whose basic pay plus dearness allowance is Rs. 1,25,000 a month, the mandatory contribution is Rs. 1,50,000 a year, which exhausts the ceiling by itself.

The Central Board of Direct Taxes applied Section 80CCD(1) to the Unified Pension Scheme by an Office Memorandum dated 2 July 2025, on the footing that the scheme is an option under NPS, and a UPS employee’s contribution sits in paragraph 1(y) on the same footing. The NPS tax benefits article covers the full sequence of deductions and exit taxation for both.

NPS Tier II tax saver account

Paragraph 1(w) allows a Central Government employee’s contribution to the additional account referred to in Section 20(3) of the Pension Fund Regulatory and Development Authority Act, 2013, where the contribution is locked for at least three years under a notified scheme. The Act never uses the word Tier; the clause is the Tier II Tax Saver Scheme opened to central government employees in 2020, the successor to Section 80C(2)(xxv). An ordinary Tier II contribution with no lock-in earns nothing.

Life insurance premium and the sum-assured test

A life insurance premium qualifies only up to a percentage of the actual capital sum assured under paragraph 2(1) of Schedule XV:

Paragraph 2(2) defines the actual capital sum assured as the minimum amount assured on the insured event at any time during the policy term, disregarding any premiums agreed to be returned and any bonus. A policy issued in 2018 with a sum assured of Rs. 4,00,000 and an annual premium of Rs. 50,000 therefore qualifies for Rs. 40,000, and the other Rs. 10,000 earns no deduction.

The policy must be on the life of the individual, the spouse or a child, or for a Hindu undivided family on any member. A policy on a parent’s life does not qualify, which is the reverse of the rule for health insurance under Section 126.

Tuition fees

Paragraph 1(q) allows tuition fees paid by an individual to a university, college, school or other educational institution situated in India, at admission or afterwards, for the full-time education of any two children. Three limits come from the clause itself:

• Only tuition fees count; development fees, donations and payments of a similar nature are excluded.
• The institution must be in India, so fees paid abroad do not qualify.
• The education must be full-time, which excludes part-time and distance courses.

The two-children limit applies to each parent, so where both parents are taxpayers and each pays fees out of their own income, each may claim for the children whose fees they pay. The clause allows fees paid in the tax year, so the year of payment governs.

The Children Education Allowance paid to central government employees is a separate matter. It is an allowance received, and its exemption is a question under Schedule III, while paragraph 1(q) is a deduction for fees paid. Paragraph 1(q) contains no condition reducing the fee by any allowance received for it.

Home-loan principal and the five-year rule

Paragraph 1(r), read with paragraph 3 of Schedule XV, allows payments for the purchase or construction of a residential house the income of which is chargeable under the head Income from house property, or would be if the taxpayer did not live in it.

Paragraph 3(a) includes four kinds of payment:

• instalments under a self-financing scheme of a development authority or housing board;
• instalments due to a company or co-operative society for a house allotted to a member;
• repayment of a loan from the Central or a State Government, a bank including a co-operative bank, the Life Insurance Corporation, the National Housing Bank, a housing finance company, or an employer that is a statutory body, a public sector company, a university or a local authority;
• stamp duty, registration fee and other transfer expenses.

Paragraph 3(b) excludes the admission fee and initial deposit for membership of a society, the cost of additions, alterations, renovation or repair after completion or occupation, and any expenditure deductible under Section 22. Interest on the loan falls under Section 22 and is claimed there; the home-loan interest article covers that deduction. A House Building Advance from the Central Government qualifies for principal repayment under paragraph 3(a)(iii)(A).

The deduction reverses if the house is transferred before five years from the end of the tax year in which possession was obtained, under serial 3 of the paragraph 4 Table. The same serial reverses it if the taxpayer receives back any of the sums paid. Reversal means no deduction for the year of transfer, and the aggregate of the deductions allowed in earlier years becomes income of that year.

Lock-ins and reversal of the deduction

Paragraph 4 of Schedule XV withdraws the deduction for four kinds of payment where a holding condition breaks, and deems the deductions already allowed to be income of the year of breach.

Paragraph 5 taxes receipts instead of reversing deductions. A withdrawal from a Senior Citizens’ Savings Scheme account or a five-year post office deposit before five years is income of the year of withdrawal, excluding interest already taxed and excluding a nominee’s receipt on death. A surrender of, or pension from, an annuity plan under paragraph 1(x) is income of the year of receipt, and so is an amount received on closure of or exit from the NPS under paragraph 1(y) that is not used to buy an annuity, except a nominee’s receipt on the subscriber’s death.

The NPS exit rule in paragraph 5 serial 3 reads alongside Schedule II serial 6, which excludes from income up to 60% of the amount payable on closure or exit. The NPS tax benefits article works through how the two interact.

Not available under the new regime

Section 123 sits in Chapter VIII of the Income-tax Act 2025, and Section 202(2)(a)(xii) computes the new regime income “without any exemption or deduction under” Chapter VIII other than Sections 124(1), 124(2), 125(2) and 146. Section 123 is not one of the four, and no other provision in the Act lets it back in.

The regime is the first decision. A taxpayer with no income from business or profession opts out of the new regime under Section 202(4)(b), along with the return for the year, and may choose afresh every year. A GPF subscriber, an NPS employee or a pensioner can therefore claim Section 123 in any year the old regime is chosen and forgo it in any year the new regime is cheaper.

For most salaried employees the new regime now wins in spite of the lost deduction, because it carries a Rs. 75,000 standard deduction and a Section 87A rebate successor under Section 156 that takes total income up to Rs. 12,00,000 out of tax. The old versus new tax regime comparison and the tax regime break-even guide work the numbers; Section 123 matters most to taxpayers who also carry a large house rent allowance exemption, home-loan interest and the additional NPS deduction.

Worked example for a central government employee

The example uses stated inputs for the financial year 2026-27 under the old regime. An NPS employee draws basic pay plus dearness allowance of Rs. 1,20,000 a month, is a Group A officer, pays a life premium of Rs. 30,000 on a 2015 policy with a sum assured of Rs. 5,00,000, and pays tuition fees of Rs. 60,000 for two children.

The employee allocates Rs. 50,000 of the NPS contribution to Section 124(3), the Rs. 50,000 additional deduction, and leaves Rs. 94,000 in paragraph 1(y). Section 124(5) forbids claiming the same amount under both, so the table splits the contribution between the two provisions. The remaining Rs. 1,85,440 still overshoots Section 123 by Rs. 35,440, which earns nothing.

At the 30% old-regime rate in item (I) of Paragraph A of Part I-B of the First Schedule to the Finance Act 2026, plus the 4% health and education cess, Rs. 2,00,000 of deductions saves Rs. 62,400 of tax (Rs. 60,000 plus Rs. 2,400 cess). The government’s 14% contribution of Rs. 2,01,600 is deducted separately under Section 124(1)(a) in either regime and does not affect this figure. The income tax calculator runs the full computation for both regimes.

How the deduction is claimed

An employee who wants Section 123 reflected in tax deducted at source on salary furnishes evidence to the drawing and disbursing officer. Rule 205 of the Income-tax Rules 2026, made under Section 392(5)(b) of the Act, requires it in Form No. 124, the successor to Form 12BB, and serial 4 of the Table to that rule covers Chapter VIII deductions.

GPF, CGEGIS and NPS Tier I contributions are recovered in the pay bill and are already on the office record, so the declaration matters mainly for insurance premium, tuition fees, home-loan principal and deposits made outside salary. The employer reports the deduction in Form 16. A deduction the office did not allow can still be claimed in the return, with the refund following.

History: from the Section 88 rebate to Section 123

The Rs. 1,00,000 consolidated deduction began with the Union Budget presented on 28 February 2005. The Finance Minister proposed “a consolidated limit of Rs.1 lakh for savings which will be deducted from the income before tax is calculated”, with all sectoral caps removed, and announced that “[t]he rebate under Section 88 is being eliminated”. Section 88 had given a rebate from tax on savings; Section 80C gave a deduction from income, and applied from the financial year 2005-06.

The limit rose once. In the Budget of 10 July 2014 the Finance Minister proposed “to increase the investment limit under section 80C of the Income-tax Act” from Rs. 1 lakh to Rs. 1.5 lakh, effective for the financial year 2014-15, and the same figure has governed every year since. Clauses were added over the years, among them the five-year bank deposit, the Senior Citizen Savings Scheme and post office deposits, and the Tier II tax saver clause for central government employees.

The Income-tax Act 2025 then moved the whole basket, with Sections 80CCC, 80CCD(1) and 80CCE, into Section 123 and Schedule XV from 1 April 2026. The ceiling, the insurance percentages, the two-children limit and the five-year house rule carried across unchanged, and the Finance Act 2026 left Section 123 and Schedule XV untouched.

Common mistakes

Citing Section 80C for 2026-27, or Section 123 for 2025-26. Section 536(2)(c) fixes the provision by the tax year, and the two are not interchangeable.

Adding the NPS 10% on top of Rs. 1,50,000. The employee’s Tier I contribution is inside the ceiling under paragraph 1(y). Only Rs. 50,000 more goes outside it, under Section 124(3).

Counting the same NPS rupee twice. Section 124(5) bars a Section 124(3) deduction on any amount already deducted under Section 123.

Claiming a whole premium on a low-cover policy. A policy issued after 1 April 2012 qualifies only up to 10% of the sum assured.

Claiming home-loan interest under Section 123. Interest is a Section 22 deduction and paragraph 3(b)(iii) excludes it.

Claiming tuition for a third child, a coaching class or a foreign university. Paragraph 1(q) covers two children, full-time education and institutions in India.

Expecting Section 123 in the new regime. Section 202(2)(a)(xii) removes it, and making the investments does not change that.

Related Articles

• Income-tax Act 2025
• Old tax regime
• New tax regime
• Old versus new tax regime
• Section 115BAC and the default new regime
• Deductions allowed in the new tax regime
• Rebate, deduction and exemption: the difference
• How to switch tax regime
• Tax regime break-even guide
• Section 80D
• Section 80CCD(1B), additional NPS deduction
• Section 80GG
• Section 80TTB
• Section 87A rebate
• Standard deduction
• HRA exemption
• Home-loan interest, Section 24(b)
• House Building Advance
• Income tax for government employees
• Income tax for pensioners
• Income tax slabs, assessment year 2027-28
• Senior citizen tax
• Advance tax
• TDS on salary
• Form 12BB
• Form 16
• Form 26AS
• General Provident Fund
• Public Provident Fund
• Employees’ Provident Fund
• Central Government Employees Group Insurance Scheme
• All India Services Group Insurance Scheme
• National Pension System
• NPS tax benefits
• Unified Pension Scheme
• Old Pension Scheme
• PFRDA
• Annuity
• Children Education Allowance
• Dearness allowance
• Pay matrix
• Drawing and disbursing officer
• Central Board of Direct Taxes
• Income tax calculator
• GPF calculator
• NPS corpus calculator
• 7th CPC salary calculator

External references

• Income-tax Act 2025, Income Tax Department
• Income Tax Department e-filing portal
• Union Budget archive, Ministry of Finance
• Central Board of Direct Taxes, Department of Revenue
• Pension Fund Regulatory and Development Authority
• Department of Expenditure, Ministry of Finance

References

1. Income-tax Act, 2025 (Act No. 30 of 2025), as amended by the Finance Act, 2026, Section 123: deduction for an individual or Hindu undivided family of the aggregate of the sums enumerated in Schedule XV, not exceeding Rs. 1,50,000.
2. Income-tax Act, 2025, Schedule XV: paragraph 1, clauses (a) to (z), sums qualifying; paragraph 2, insurance premium limited to 20%, 10% or 15% of the actual capital sum assured; paragraph 3, payments for purchase or construction of a residential house; paragraph 4, disallowance and taxation of deductions already allowed; paragraph 5, taxation of receipts; paragraph 6, interpretation.
3. Income-tax Act, 2025, Section 124(1)(a), (3) and (5): employer’s contribution to the notified pension scheme, the additional Rs. 50,000 deduction, and the bar on claiming under Section 124(3) an amount deducted under Section 123.
4. Income-tax Act, 2025, Section 202(2)(a)(xii) and Section 202(4)(b): removal of Chapter VIII other than Sections 124(1), 124(2), 125(2) and 146 from the new regime, and exercise of the option by a person without business income.
5. Income-tax Act, 2025, Section 536(1), repealing the Income-tax Act, 1961; Section 536(2)(c), (h) and (j), continuing the repealed Act for tax years beginning before 1 April 2026, taxing a later breach of a pre-2026 deduction, and continuing notifications and schemes issued under the repealed Act.
6. Income-tax Act, 1961, Sections 80C, 80CCC, 80CCD(1) and 80CCE, as they stood before their repeal.
7. Budget Speech 2005-06, Minister of Finance, 28 February 2005, paragraph 155: consolidated limit of Rs. 1 lakh for savings and elimination of the Section 88 rebate.
8. Budget Speech 2014-15, Minister of Finance, 10 July 2014, paragraph 195: investment limit under Section 80C raised from Rs. 1 lakh to Rs. 1.5 lakh.
9. Finance Act, 2026 (Act No. 4 of 2026), First Schedule, Part I-B, Paragraph A, item (I), and Section 3(15) and (16): old-regime rates and the health and education cess for the tax year 2026-27.
10. Income-tax Rules, 2026, rule 205 and serial 4 of the Table to that rule, made under Section 392(5)(b) of the Income-tax Act, 2025: evidence of a Chapter VIII deduction furnished by an employee in Form No. 124.