Section 80C in FY 2026-27: Now Section 123

Most people know the ₹1.5 lakh number. Far fewer check two things before relying on it: whether their own regime choice still lets them claim it at all, and whether what they actually paid for is on the eligible list in the first place.

Legal or Computational Framework

The restriction most guides bury: this deduction is available only if you file under the old tax regime. If you choose the new tax regime (the default regime unless you actively opt out), none of the payments below reduce your taxable income, no matter how much you actually paid into EPF, PPF, life insurance or a home loan.

Section 123, read with Schedule XV of the Income-tax Act, 2025, consolidates what were separate Sections 80C, 80CCC and the 80CCD(1) component of NPS into one basket sharing the same ₹1,50,000 aggregate ceiling. Commonly claimed items include: EPF/VPF employee contribution, PPF, life insurance premium (subject to a sum-assured-linked cap for policies issued after specified dates), ELSS mutual funds, tuition fees for up to two children, principal repayment of a home loan, 5-year tax-saving bank fixed deposits, NSC, Sukanya Samriddhi Yojana, and the employee’s own NPS contribution under the 80CCD(1) component — the separate additional ₹50,000 NPS deduction under 80CCD(1B) sits outside this ₹1.5 lakh cap and is claimed independently.

Specified investments and payments share this one aggregate ceiling and each has product-level conditions, lock-ins and reversal rules — for example, an ELSS unit redeemed or a life policy surrendered within its lock-in can reverse the deduction already claimed in an earlier year. Employer amounts and home-loan interest (claimed separately, not under this section) are not automatically included.

Core working: First confirm you are on the old regime. Then test each eligible item, remove non-qualifying charges, aggregate, and cap at ₹1,50,000 and eligible gross total income.

Why the result is fact-sensitive

The same keyword can produce different answers because residence, age, employment terms, service period, contribution payer, deposit type, income composition, tax regime and documentation differ. Payroll terminology is not always statutory terminology. A calculator must therefore state the legal definition used for salary, wages, contribution, deposit, deduction or exemption.

Step-by-step method

1. Identify the governing tax year and statute.
2. Confirm taxpayer category, residence and regime.
3. Classify every input under the correct current provision.
4. Apply actual-amount, statutory and shared ceilings in order.
5. Recompute tax, rebate, surcharge, marginal relief and cess.
6. Reconcile official statements and retain an audit trail.

Worked example

EPF ₹78,000, PPF ₹60,000, tuition ₹45,000 and life premium ₹25,000 total ₹2.08 lakh, but the shared deduction remains ₹1.5 lakh.

The example is an audit model, not a substitute for the taxpayer's records. Change one input—such as residence, regime, payment date, disability band, contribution payer, state, service period or income type—and the answer may change.

Decision checks before claiming or calculating

1. Correct period: confirm whether the question concerns AY 2026–27 or Tax Year 2026–27.
2. Correct statute: cite the 2025 Act for income from 1 April 2026; use the Social Security Code for current gratuity entitlement.
3. Correct person: establish who paid, earned, received or is legally eligible.
4. Correct base: use statutory salary, wages, interest, contribution or adjusted income—not a convenient payroll label.
5. Correct ceiling: apply actual-amount, shared, lifetime and gross-total-income ceilings in the right sequence.
6. Correct evidence: reconcile the result to official statements, certificates, payroll and bank records.

Use the ITR Form Selector — AY 2026–27 to work through the related inputs before acting.

What Generic Pages Miss

For the connected rule, example or next step, see Old vs New Tax Regime Calculator: How the Comparison Actually Works.

Practical Documentation Checklist

• provision ledger
• payment proofs
• gross-total-income computation
• regime comparison
• payroll declaration
• rejection audit trail

See the broader Income-tax Act 2025 study guide hub for related rules and calculators on this topic.

For the connected rule, example or next step, see NPS Deduction: 80CCD(1B), Employer Contribution and Evidence.

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