Section 123 (Old 80C) Deductions for FY 2026-27: The ₹1.5 Lakh List, Compared

The Short Answer

Section 80C is now section 123 of the Income-tax Act, 2025. Nothing about it changed except the number: you can still deduct up to ₹1.5 lakh a year for a list of investments and payments, including EPF, PPF, ELSS, life insurance premium, home loan principal and children’s tuition fees. It is available only in the old tax regime.

Two things decide whether it is worth anything to you. First, which regime you are in: in the new regime, section 123 saves nothing. Second, how much of the ₹1.5 lakh you have already used without trying: EPF, a home loan and school fees often fill it before you invest a rupee.

At the 30% slab, a full ₹1.5 lakh deduction saves ₹46,800 including cess; at 20%, ₹31,200; at 5%, ₹7,800.

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What Qualifies

What counts under section 80C (now section 123)

The eligible items are listed in Schedule XV of the new Act. They fall into three groups:

Group	Items
Things you may already be paying	Your own EPF contribution (not the employer’s); home loan principal on a residential house; stamp duty and registration on buying one (in the year paid); tuition fees for up to two children in full-time education in India; life insurance premiums for you, your spouse and children
Small savings and deposits	PPF; Sukanya Samriddhi; NSC; Senior Citizens Savings Scheme; 5-year tax-saver bank FD or post office time deposit
Market-linked and pension products	ELSS mutual funds; ULIPs; your own contribution to NPS Tier I; deferred annuity and pension plans (the old 80CCC)

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Check First

You may have used it up already

Before you buy anything for tax, add up what already counts. A typical salaried example:

Item	Amount for the year
Your EPF (12% of ₹50,000 basic a month)	₹72,000
Home loan principal	₹60,000
School tuition fee, one child	₹40,000
Total	₹1,72,000, already over ₹1.5 lakh

This person needs to invest nothing more under section 123. Any ELSS or PPF they add is for its own sake, not for tax. Your payslip, loan statement and fee receipts tell you where you stand.

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The Options Compared

Section 123 options side by side

Rates are for October to December 2026. Small savings rates are reset every quarter.

Option	Return	Lock-in	Tax on the returns	Risk
ELSS mutual fund	Market-linked	3 years (shortest)	Long-term gains above ₹1.25 lakh a year taxed at 12.5%	Equity market risk
PPF	7.1%	15 years (partial withdrawal from year 7)	Tax-free	Government-backed
Sukanya Samriddhi (girl child under 10)	8.2%	Until the girl turns 21 (partial at 18)	Tax-free	Government-backed
NSC	7.7%	5 years	Interest taxable (reinvested interest counts for 123)	Government-backed
Senior Citizens Savings Scheme (60+)	8.2%	5 years	Interest taxable	Government-backed
5-year post office time deposit	7.5%	5 years	Interest taxable	Government-backed
5-year tax-saver bank FD	Bank’s rate	5 years	Interest taxable	Bank deposit
NPS Tier I (own contribution)	Market-linked	Until 60, mostly	Partly tax-free at exit; part must buy an annuity (PFRDA rules)	Mixed, by allocation
Life insurance / ULIP premium	Depends on plan	Policy term; ULIP 5 years	Maturity tax-free only within premium limits	Plan-specific

PPF and Sukanya Samriddhi interest stays tax-free in both regimes, so they remain useful even if you move to the new regime and lose the deduction.

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Rules and Catches

Conditions that catch people out

• Life insurance premium counts only up to 10% of the sum assured for policies issued after 1 April 2012 (15% for policies on people with specified disabilities or diseases). A policy with a small cover and a big premium gets only part of the deduction.
• Stopping early reverses the deduction. If you stop a regular life policy within two years, or a ULIP within five, the deductions you claimed are added back to your income that year.
• Selling the house within five years of getting possession reverses the home loan principal deductions claimed.
• Tuition fees mean tuition only, for up to two children, in full-time education in India. Development fees, donations, transport and coaching classes do not count.
• Timing: the deduction is for the year you pay. An ELSS bought on 2 April falls into the next year.

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Is It Worth It?

Section 80C, section 123 and the regime choice

Section 123 matters only if the old regime is cheaper for you overall. For most salaried people that needs HRA or a home loan on top: at ₹15 lakh, the old regime needs about ₹5.4 lakh of deductions to win, and section 123 can supply at most ₹1.5 lakh of it.

So the order of decisions is: first, check the regime with the regime calculator (and our guide to choosing a regime); second, add up what you already pay that counts; third, if there is a gap and the old regime wins, fill it with something you would want to own anyway.

If you rent, your HRA exemption is usually the bigger lever.

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Common Mistakes

Mistakes people make with section 80C and section 123

1. Buying insurance to save tax

A savings-type policy bought in March for the deduction often returns less than a PPF after charges, and stopping it early reverses the tax benefit. Buy cover for protection, and size it properly.

2. Investing for tax in the new regime

If you file under the new regime, section 123 investments give you no deduction at all.

3. Forgetting what already counts

EPF, home loan principal and tuition fees often fill most of the ₹1.5 lakh.

4. Counting the employer’s EPF share

Only your own contribution counts. The employer’s share is separately exempt within limits.

5. Locking money you will need

PPF locks for 15 years and Sukanya Samriddhi until 21. Match the lock-in to the goal, not to the tax deadline.

Questions

Frequently asked questions

Is section 80C still available?

Yes, as section 123 of the Income-tax Act, 2025, from FY 2026-27. The ₹1.5 lakh limit and the eligible investments are unchanged. It is available only in the old tax regime.

What is the maximum deduction under section 123?

₹1.5 lakh a year in total across all eligible items, including pension plan premium and your own NPS contribution. NPS allows up to ₹50,000 more on top, also in the old regime only.

Can I claim 80C or section 123 in the new tax regime?

No. The new regime does not allow it. You can still invest in PPF, ELSS and the rest, but you get no deduction.

Does EPF count towards section 123?

Your own contribution does, including voluntary PF. Your employer’s contribution does not count.

Which section 123 investment has the shortest lock-in?

ELSS mutual funds, at three years from each investment. Tax-saver FDs, NSC and SCSS lock for five years, PPF for fifteen.

Do school fees count?

Tuition fees do, for up to two children in full-time education in India. Development fees, donations and transport charges do not.