According to the Income Tax Bill 2025, tax-saving deductions under Section 80C of the Income Tax Act, 1961 have been moved to Clause 123. This change is part of a larger effort to simplify the tax system and make it easier for taxpayers to understand and comply with.
What Does This Mean for Taxpayers?
While the location of the deductions has changed, the core benefits remain the same. Clause 123 encompasses the same range of investments and expenditures that were previously covered under Section 80C. Taxpayers can still reduce their taxable income by investing in various eligible schemes and incurring qualifying expenses.
Investments and Expenses Covered Under Clause 123:
Clause 123 allows deductions for investments in several key areas, including:
- Life Insurance Premiums: Payments towards life insurance policies for yourself, your spouse, and your children.
- Public Provident Fund (PPF): Contributions to your PPF account.
- Employee Provident Fund (EPF): Contributions to your EPF account.
- National Pension System (NPS): Contributions to the National Pension System.
- Equity Linked Savings Scheme (ELSS): Investments in ELSS mutual funds.
- Sukanya Samriddhi Yojana (SSY): Contributions to the Sukanya Samriddhi Yojana account for your girl child.
- National Savings Certificates (NSC): Investments in National Savings Certificates.
- Home Loan Principal Repayment: Repayment of the principal amount of your home loan.
- Tuition Fees for Children: Tuition fees paid for your children’s education.
Maximum Deduction Remains the Same:
The maximum amount that can be claimed as a deduction under Clause 123 remains unchanged at Rs 1.5 lakh per financial year. This means taxpayers can still reduce their taxable income by up to Rs 1.5 lakh by investing in the eligible schemes and incurring qualifying expenses.
Why the Change?
The move to Clause 123 is part of a broader effort to streamline the tax code and make it more accessible to taxpayers. By consolidating similar provisions and simplifying the structure of the Income Tax Act, the government aims to reduce complexity and improve compliance.
The income tax bill shifts Section 80C deductions to Clause 123, effective April 1, 2026. The reform intends to simplify tax regulations and enhance taxpayer understanding while eliminating several dated provisions.
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