Income Tax

Old Section 80C Proofs vs New Deduction Proof Workflow: FAQ for Founders, CFOs & Individuals

By CA Nikhil Gupta Updated June 2026 Section 123 New Act

Reviewed by CA Nikhil Gupta · Last reviewed 23 June 2026

Official sources cited: Income Tax Act 2025 Section 123 | Income Tax Rules 2026 | incometax.gov.in | CBDT Notifications

Section 80C — the most familiar deduction for every salaried taxpayer — has been renumbered as Section 123 under the Income Tax Act, 2025, effective Tax Year 2026-27. The deduction limit of ₹1.5 lakh and the list of eligible investments remain identical. What changes are the section citations in payroll, Form 12BB / Form 124, and audit reports. This FAQ guide answers every practical question founders, CFOs, and employees have about how the investment proof submission process works under the new framework.

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Section 80C → Section 123: What Changed, What Didn't

Parameter	Old Act (Section 80C)	New Act (Section 123)
Maximum deduction	₹1,50,000 per year	₹1,50,000 per year (unchanged)
Eligible investments	ELSS, PPF, EPF, LIC, NSC, home loan principal, tuition fees, SSY, SCSS, 5-yr FD, etc.	Same list — all investments continue
Regime availability	Old tax regime only	Old tax regime only (unchanged)
Proof submission process	Form 12BB declaration + proofs to employer	Form 124 declaration + proofs to employer (form name updated)
Section cited in ITR	Section 80C	Section 123 (for Tax Year 2026-27 ITR)
Section cited in Form 16/130	Section 80C in Form 16 Part B	Section 123 in Form 130 Part B

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July 2026 ITR (FY 2025-26): For your current ITR filing in July 2026 for FY 2025-26 income, you still cite "Section 80C" — the old Act applies. Use old Form 16 (not Form 130). Section 123 applies from Tax Year 2026-27 ITR filed in 2027.

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Practical FAQ — Section 123 (Old 80C) Proofs for Tax Year 2026-27

Q1. My employer's HR portal still shows "80C Declaration" — is it valid for Tax Year 2026-27?

If your employer's HRMS has not yet updated to Section 123 references, the declaration is still functionally valid for computing TDS — the underlying investment and deduction are the same. However, employers should update their systems to reference Section 123 in payroll documents, Form 124 declarations, and Form 130 TDS certificates to ensure compliance with Income Tax Rules 2026. If your employer's portal says "80C" for Tax Year 2026-27 returns, ask your HR to confirm if their payroll vendor has issued a compliance update.

Q2. Which investments qualify for Section 123 deduction — is the list different?

No change. All investments qualifying under old Section 80C continue under Section 123: ELSS mutual funds, PPF contributions (Post Office or bank), EPF employee contribution (automatically deducted from salary), LIC and other life insurance premiums (for self, spouse, children), NSC (National Savings Certificate), 5-year tax-saving bank or post office FDs, Sukanya Samriddhi Yojana contributions (for daughters up to age 10), SCSS (Senior Citizens Savings Scheme), home loan principal repayment, stamp duty and registration fees on home purchase, tuition fees for up to 2 children (not coaching fees), Unit-linked insurance plans (ULIPs), and infrastructure bonds notified by the government. The aggregate limit for all these combined is ₹1,50,000 per year.

Q3. When should employees submit investment declarations and proofs to employers?

Declaration (beginning of year): April–May each year. For Tax Year 2026-27, employees should submit their investment declaration (Form 122 under new Act) to their employer by April–May 2026. The employer uses this to compute monthly TDS. Actual proofs (before year-end): Most employers require actual proof submission by December–January (for year-end TDS adjustment). For Tax Year 2026-27, submit actual investment proofs (ELSS statement, LIC receipt, PPF passbook, etc.) to your employer by January 2027 at the latest, to allow the employer to adjust TDS in the February–March 2027 salary.

Q4. What documents count as proof for each investment under Section 123?

ELSS mutual fund: Consolidated Account Statement (CAS) from CAMS/KFintech or mutual fund statement showing investment amount in Tax Year 2026-27
PPF: PPF passbook showing deposits or bank statement with PPF credit
EPF: Usually automatic — reflected in salary slip. No additional proof needed
LIC / insurance premium: Premium paid receipt for the policy year (typically with policy number)
Home loan principal: Certificate from bank/NBFC showing principal component of EMI repaid during the year (separate from interest certificate)
Tuition fees: School/college fee receipts (not tuition centres or coaching) for up to 2 children
Sukanya Samriddhi: Passbook showing deposit amount
5-year FD: FD certificate showing 5-year term deposit in approved bank/post office
NSC: NSC certificate showing purchase amount

Q5. Are digital proofs accepted? Can I upload PDFs instead of physical copies?

Most employers now accept digital proofs (PDF uploads through HRMS). The Income Tax Rules do not specifically require physical originals for the employer's TDS purpose — digital proofs downloaded from investment platforms (CAMS, Zerodha, HDFC Bank, LIC portal) are generally accepted. However, the employer retains the right to verify and reject suspicious documents. For ITR filing, you do not submit proofs to the Income Tax Department — you self-declare in the ITR. Proofs are only required if the IT Department sends a scrutiny notice, at which point digital or physical are both acceptable evidence.

Q6. What if an employee forgets to submit 80C/Section 123 proofs to the employer?

If you forget to submit proofs to your employer by the deadline, the employer will not consider those investments in TDS computation. You'll have higher TDS deducted from your salary (since deductions weren't considered). However, you can still claim all legitimate Section 123 deductions when you file your own ITR in July 2027. The ITR will show lower tax than TDS — resulting in a tax refund. The deductions are claimed directly in your ITR, and you don't need to share proofs with the employer to claim in ITR. Keep the proofs in case of future scrutiny.

Q7. As a startup founder or CFO, what's my responsibility for ensuring Section 123 compliance for employees?

As an employer, your obligations: (1) Collect investment declarations via Form 124 at the start of Tax Year 2026-27 (April 2026). (2) Compute TDS under Section 392(1) considering declared deductions. (3) Collect actual proofs by January 2027. (4) Adjust TDS in February–March 2027 salary to reflect actual proofs submitted. (5) Issue Form 130 (replacing Form 16) to employees by 15 June 2027 showing Section 123 in the deduction section. Failure to collect proofs before considering deductions in TDS can make you liable if deductions are later found to be incorrect. Ensure your HRMS vendor has updated all form references from Section 80C to Section 123 for Tax Year 2026-27.

Case Study: FinTech Startup — Transitioning 150 Employees to New Act Proof Workflow

CFO, Fintech Company, Bengaluru — April 2026 HR Transition

Nandini, CFO of a 150-employee fintech startup, had to manage the transition from Section 80C to Section 123 for Tax Year 2026-27. Three issues arose in April 2026:

Issue 1 — HRMS not updated: Their HR software still showed "80C Declaration Form" instead of the updated Form 124 template. Nandini raised a ticket with the vendor — patch issued by 20 April 2026. Old declarations collected in the interim were functionally valid but re-confirmed once system was updated.
Issue 2 — Employee confusion about new regime: 45 employees who were on the new regime thought they needed to submit 80C/Section 123 proofs. Nandini sent a clear internal email: "If you chose new regime via Form 124, no investment proof collection is needed — Section 123 deduction is not available in new regime."
Issue 3 — Digital proof policy: 3 employees had LIC receipts only in physical form. Company's policy was updated to allow photo uploads of physical receipts through HRMS — same day resolution.

Employees on Old Regime

105 (Section 123 relevant)

Employees on New Regime

45 (no Section 123 needed)

Old Section Reference

Section 80C

New Section Reference

Section 123

Section 123 Proof Submission — Complete Calendar for Tax Year 2026-27

Month	Action	Who
April 2026	Submit investment declaration via Form 124 to employer (regime choice + planned investments)	Employee
April 2026	Start monthly TDS under Section 392(1) considering declared Section 123 deductions	Employer
January 2027	Submit actual investment proofs (ELSS statement, LIC receipt, PPF passbook) to employer	Employee
Feb–Mar 2027	Adjust TDS for gap between declared and actual investments; adjust monthly TDS	Employer
May 2027	File Q4 Form 138 with final salary details (Annexure II)	Employer
15 June 2027	Issue Form 130 to employees with Section 123 deduction shown in Part B	Employer
July/Aug 2027	File ITR for Tax Year 2026-27 — claim Section 123 deductions; no need to submit proofs to IT Dept	Employee

Section 123 (Old 80C) Proof Workflow — Key Points

Section 80C = Section 123 in new Act — same ₹1.5 lakh limit, same investments, same old regime restriction
For July 2026 ITR (FY 2025-26): cite "Section 80C" — old Act applies
From Tax Year 2026-27: cite "Section 123" in payroll, Form 130, and ITR
Employee declaration form: Form 12BB under old rules → Form 124 under new rules
New regime employees: Section 123 not applicable — no need to submit investment proofs
Investment list unchanged: ELSS, PPF, EPF, LIC, NSC, home loan principal, tuition fees, SSY, SCSS, 5-yr FD
Digital proofs (PDF) generally accepted by employers; keep originals for IT scrutiny
If you miss employer proof deadline: still claim in ITR directly and get TDS refund
Founders/CFOs: update HRMS references from 80C to Section 123 and from Form 12BB to Form 124

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Frequently Asked Questions

Section 80C itself doesn't exist in the Income Tax Act, 2025 — but the deduction continues as Section 123. Same ₹1,50,000 limit, same eligible investments (ELSS, PPF, LIC, EPF, NSC, home loan principal, tuition fees, SSY, SCSS, 5-yr FD), and same old-regime-only restriction. For Tax Year 2026-27 onwards, cite Section 123 in payroll, ITR, and Form 130. For AY 2026-27 (July 2026 ITR), still use "Section 80C."

Yes. The declaration and proof submission process continues. The form name changes from Form 12BB (old) to Form 124 (new) under Income Tax Rules 2026. Employees on old regime submit declaration in April 2026 and actual proofs by January 2027. Employers adjust TDS accordingly. New regime employees don't need to submit Section 123 proofs since the deduction is not available in the new regime.

Same documents as old 80C: ELSS — CAS/mutual fund statement; PPF — passbook or bank statement; LIC — premium receipt; Home loan principal — bank certificate; Tuition fees — school receipts for up to 2 children (not coaching classes); SSY — passbook; NSC — certificate; 5-yr FD — certificate. Digital proofs (PDFs) are increasingly accepted by employers. No proofs need to be submitted to the Income Tax Department when filing ITR — self-declaration in ITR is sufficient unless a scrutiny notice is received.

Sources & Verification: Income Tax Act, 2025, Section 123 | Income Tax Rules 2026 (Form 124 declaration, Form 130) | Income Tax Act, 1961, Section 80C | incometax.gov.in New Act FAQ and ITR guidance | CBDT notifications on Section 123 deduction list. Data verified June 2026.

Disclaimer: This article is educational. Section 123 investment list and proof requirements may be subject to further CBDT clarifications. Consult a CA for employer-specific investment declaration policy and proof verification standards.

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October 2026 update: Old Section 80C Proofs vs New-Act Deduction Proof Workflow

Finin2min 2-Minute Summary

The Income Tax Department confirms that old section 80C/80CCE-style specified-investment deduction is carried into section 123 of the Income-tax Act, 2025 read with Schedule XV.
Section 123 retains the Rs 1.5 lakh aggregate ceiling for eligible specified payments/deposits by an individual or HUF, subject to Schedule XV conditions.
The Department also confirms that section 123 deduction is not available under the default concessional regime in section 202. Proof collection is therefore relevant only after the employee/taxpayer's regime position is established.
For Tax Year 2026-27, investment declarations should reference the 2025 Act. Payroll systems should not continue to label current deductions only as old section 80C.
A strong proof file validates payment date, ownership/beneficiary conditions, instrument eligibility and any lock-in or policy-specific conditions - not merely the amount.

Change the payroll label before changing the proof checklist

The Department's transition guidance is explicit: an employee declaration for Tax Year 2026-27 should use the Income-tax Act, 2025 references. What payroll teams historically called '80C' now maps to section 123 and Schedule XV. Keeping an '80C' nickname in an internal column is harmless, but the statutory position and employee communication should use the current legal citation.

The deduction limit remains Rs 1.5 lakh in aggregate for eligible specified payments/deposits. The more important control is regime selection: section 123 is not available under section 202's new concessional regime. Collecting a large proof pack for an employee who remains in the default regime adds no tax benefit and creates needless HR processing.

Evidence must prove eligibility, not just payment

Each instrument has its own conditions. A life-insurance receipt proves payment but may not prove that the policy or premium satisfies the schedule. Tuition-fee proof needs the eligible child/institution facts. Housing-loan principal evidence should be reconciled to the qualifying property and lender certificate. Provident-fund and other contributions should tie to payroll or account statements.

Create a proof index with payment date, amount, claimant, beneficiary, legal category and rejected amount. This makes year-end payroll adjustment transparent and allows the employee to reconcile Form 16/new-form equivalents to the final return.

Worked example: employee submits Rs 2.1 lakh of investments

An employee under the non-concessional regime submits eligible provident-fund, life-insurance and tuition-fee documents totalling Rs 2.1 lakh for Tax Year 2026-27. Payroll should test each document against Schedule XV, cap the section 123 aggregate at the statutory ceiling and retain the accepted/rejected proof working. If the employee instead remains under section 202's concessional regime, payroll should not reduce taxable income for section 123 merely because the same investments were made.

Proof workflow

Lock tax-regime status before accepting deduction impact.
Use section 123 / Schedule XV labels for Tax Year 2026-27.
Validate instrument, claimant, beneficiary, payment date and statutory conditions.
Cap the eligible aggregate at the current statutory amount.
Reconcile accepted proofs to payroll TDS and year-end salary certificate.
Retain rejected-item reasons so return-preparation differences can be explained.

Questions readers commonly ask

What is the new reference for section 80C?

The Department maps the deduction to section 123 read with Schedule XV of the Income-tax Act, 2025.

Is the aggregate ceiling still Rs 1.5 lakh?

Yes. Section 123 states a maximum aggregate deduction of Rs 1,50,000, subject to Schedule XV.

Can section 123 be claimed under the new concessional regime?

The Department's transition FAQ says no; section 123 is not available under section 202.

Should employers use old section 80C in TY 2026-27 declarations?

The Department says investment declarations for TY 2026-27 should reference the 2025 Act.

Official / primary sources

Income-tax Act, 2025 - section 123 - Rs 1.5 lakh deduction; Schedule XV
Income Tax Department transition FAQs - Q6.24 and Q8.10-Q8.11: old 80C -> section 123 / Schedule XV and regime restriction
Income-tax Act, 2025 current consolidated text - Section 202 and deduction architecture

Source and review trail

Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.

Primary category: Income Tax
Official starting point: www.incometax.gov.in

Page source links

The prior page did not embed a page-specific external source. The category authority above is the minimum verification starting point; a specific instrument should be added when available.

Primary sources & related provisions

Statutory provisions referenced in this guide: