Old Section 80C Proofs vs New Deduction Proof Workflow: FAQ for Founders, CFOs & Individuals
By Finin2min Research DeskP0 — Publish FirstUpdated June 2026Section 123 New Act
✅ Verified: 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.
Use the Income Tax CalculatorModel the tax impact alongside this guide.
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
ℹ️
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.
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
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)
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.