Restructuring of Section 80C: Now Under Section 123 in the Income Tax Bill 2025

The Income Tax Bill 2025 introduces significant changes to the taxation framework, aiming to simplify and modernise tax laws. As part of this reform, over 300 outdated provisions, including Section 80C, 80CCA, and 80CCF, have been removed to streamline deductions. The eligible saving instruments for tax deductions are clearly outlined in Schedule XV under Section 123. With these changes set to take effect from April 1, 2026, taxpayers must prepare for adjustments in their financial planning. This article explores the shift of Section 80C under Section 123 and its broader implications in detail.

What is Section 80 of the Income Tax Act?

Section 80 of the Income Tax Act encompasses various deductions that help taxpayers reduce their taxable income. It includes multiple sub-sections, such as 80C, 80D, and 80G, allowing deductions for investments, insurance premiums, medical expenses, and charitable donations. These provisions aim to promote savings, health security, and social welfare while providing tax relief. By utilizing eligible deductions under Section 80, individuals and businesses can effectively lower their tax liability within the limits prescribed by the law.

Key Deductions under the Section 80C

Section 80C of the Income Tax Act allows deductions of up to ₹1.5 lakh from taxable income for specified investments and expenses. Key deductions under this section include:

Employee Provident Fund (EPF)
Public Provident Fund (PPF)
National Savings Certificate (NSC)
Tax-saving Fixed Deposits (FDs)
Equity-Linked Savings Schemes (ELSS)
Life Insurance Premiums
Principal repayment of home loan
Tuition fees for children
Sukanya Samriddhi Yojana (SSY) contributions

These deductions help taxpayers reduce their tax burden while promoting long-term savings and financial security.

Changes in Section 80C Provisions in New Bill 2025

The Income Tax Bill 2025 restructures Section 80C to enhance clarity and accessibility for taxpayers. Previously, various sums eligible for deduction were scattered across different sub-sections, making the provision complex. Under the new bill, these deductions have been consolidated into Schedule XV, which provides a simplified and organized list of eligible savings instruments. While the overall deduction limit remains unchanged, this restructuring improves transparency and makes it easier for taxpayers to identify qualifying investments. These changes aim to streamline the tax-saving process and enhance taxpayer compliance.

Saving Instruments Eligible for Deductions in Schedule XV under Section 123

Section 123 of the Income Tax Bill 2025, as outlined in Schedule XV, specifies the savings instruments that are eligible for deductions. These instruments are designed to encourage long-term savings and secure financial stability. Below is a detailed list of savings instruments eligible for deduction under Section 123:

Life Insurance Premiums: Premiums paid for life insurance policies, including those for the taxpayer, their spouse, or children.
Deferred Annuity Contract Payments: Amounts paid under a deferred annuity contract, excluding annuity plans.
Government Salary Deduction for Annuity: Deductions from salary, up to 20%, for securing a deferred annuity or making provisions for a spouse or children.
Employee Provident Fund (EPF) Contributions: Employee contributions to EPF, ensuring long-term retirement savings.
Approved Superannuation Fund Contributions: Contributions made by employees to an approved superannuation fund for retirement benefits.
Sukanya Samriddhi Yojana (SSY): Contributions to SSY in the name of an individual or their girl child, encouraging savings for their future.
National Savings Certificate (NSC): Subscription to NSC, which offers guaranteed returns and tax benefits.
Unit-Linked Insurance Plan (ULIP): Contributions to ULIPs, offering a combination of insurance and investment.
Annuity Plan Contributions: Payments made for an annuity plan from LIC or other insurers notified by the Central Government.
Equity-Linked Savings Scheme (ELSS): Investments in units of ELSS, providing market-linked returns with tax deductions.
National Housing Bank (NHB) Pension Fund Contributions: Deposits in pension funds or schemes set up by the NHB, promoting post-retirement financial security.
Tuition Fees: Tuition fees (excluding donations or development fees) paid for full-time education of up to two children in India.
Home Loan Principal Repayment: Payments made for the purchase or construction of a residential house property generating taxable income under "Income from house property."
Five-Year Fixed-Term Deposits: Term deposits with a lock-in period of at least five years, offering secure savings options.
NABARD Bonds: Subscription to bonds issued by the National Bank for Agriculture and Rural Development (NABARD), supporting rural development initiatives.
Senior Citizen Savings Scheme (SCSS): Deposits made under the Senior Citizen Savings Scheme Rules, 2004, designed to provide regular income for senior citizens.
Post Office Time Deposit: Five-year term deposits under the Post Office Time Deposit Rules, 1981, offering risk-free returns.
National Pension System (NPS): Contributions made to NPS or any other government-notified pension scheme aimed at providing retirement benefits.

Here’s the attachment regarding the complete list of saving instruments eligible for tax deductions under section 123 from the Income tax bill 2025,

Also read: TDS/TCS Provisions in the New Income Tax Bill 2025

Conclusion

In conclusion, the restructuring of Section 80C under Section 123 of the Income Tax Bill 2025 represents a significant shift towards simplifying the tax framework and enhancing taxpayer accessibility. The consolidation of various deductions into Schedule XV streamlines the process of identifying eligible savings instruments, making it easier for taxpayers to maximise their deductions. With the continued focus on promoting long-term financial security through targeted tax-saving investments, these changes aim to increase compliance and ensure that the benefits of tax relief are more clearly understood and accessible to all.

FAQs

1. What is Section 80C of the Income Tax Act?

Section 80C allows taxpayers to claim deductions of up to ₹1.5 lakh from their taxable income for specified investments, such as Employee Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificates (NSC), and life insurance premiums.

2. What is the main change in Section 80C under the Income Tax Bill 2025?

The Income Tax Bill 2025 restructures Section 80C by consolidating various deductions into Schedule XV under Section 123 to simplify the tax-saving process and improve clarity for taxpayers.

3. When will the changes under the Income Tax Bill 2025 take effect?

The changes are set to come into effect from April 1, 2026.

4. What are the key savings instruments eligible for tax deductions under Section 123 of the new bill?

Some of the eligible instruments include life insurance premiums, contributions to Employee Provident Fund (EPF), National Savings Certificates (NSC), Equity-Linked Savings Schemes (ELSS), and the National Pension System (NPS).

5. Can I still claim a deduction of ₹1.5 lakh under the new Section 123?

Yes, the overall deduction limit of ₹1.5 lakh remains unchanged under the new structure. However, the instruments eligible for deduction are now clearly organized in Schedule XV.

6. What is the role of Schedule XV in the new bill?

Schedule XV lists all the savings instruments that qualify for deductions under Section 123, making it easier for taxpayers to identify eligible investments and streamline their financial planning.

7. How does the new structure under Section 123 benefit taxpayers?

The new structure simplifies the tax-saving process by consolidating various deductions into a single list, making it more transparent and easier for taxpayers to comply with tax laws.