New Section 123: Restructuring the 80C deductions for better

The recently introduced Income-Tax Bill, 2025 has brought a significant restructuring of tax provisions, including the renumbering of Section 80C to Section 123. While the deduction limit remains the same, this reorganization aims to make tax laws simpler and more structured.

Understanding Section 123 and its implications is crucial for taxpayers who want to maximize tax savings and ensure compliance with the latest tax regulations.

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What Is Section 123 in the New Income Tax Bill?

Section 123 consolidates tax-saving investments and eligible expenditures under one provision, allowing individuals to claim deductions of up to ₹1.5 lakh annually. The specifics of these eligible instruments are outlined in Schedule XV of the Income-Tax Bill, 2025.

While the section number has changed, the benefits, deductions, and investment options remain largely the same as they were under 80C deductions.

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Eligible Investments and Expenditures Under Section 123

The following investment avenues and expenses qualify for income tax deductions under Section 123:

• Life Insurance Contributions: Payments made toward life insurance policies covering the taxpayer, their spouse, or dependent children are eligible for deductions.
• Public Provident Fund (PPF) Contributions: Deposits made into PPF accounts continue to qualify for tax savings, making them a reliable long-term investment option.
• Equity-Linked Savings Schemes (ELSS): Investments in ELSS mutual funds provide both tax benefits and equity market exposure.
• Employee Provident Fund (EPF) Contributions: A portion of salaried employees’ EPF contributions qualifies under Section 123 deductions.
• Sukanya Samriddhi Yojana (SSY) Deposits: Contributions made toward a SSY account for a girl child’s future financial security remain eligible for deductions.
• National Savings Certificate (NSC) Investments: Purchasing NSCs allows individuals to claim deductions while earning guaranteed returns.

A complete list of qualifying investment options can be found in Schedule XV of the Income-Tax Bill, 2025.

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How Section 123 Simplifies Tax Deductions

The transition from 80C deductions to Section 123 is primarily aimed at simplifying tax provisions, reducing ambiguity, and making the tax structure easier to understand. Here’s how:

• Consolidation of Provisions: Instead of multiple scattered sections, tax-saving investments are streamlined under a single section.
• Easier Compliance: Taxpayers can easily identify which investments qualify for deductions without confusion.
• No Change in Deduction Limits: The maximum deduction remains ₹1.5 lakh, ensuring continuity for taxpayers already planning their tax savings based on the old structure.

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Potential Challenges and Considerations

While the restructuring of income tax deductions under Section 123 aims to simplify tax planning, taxpayers should be mindful of the following:

• Familiarization with New Section Numbering: Many taxpayers may still search for 80C deductions, unaware that it has been renumbered.
• Verification of Eligible Investments: While most qualifying instruments remain unchanged, it’s always advisable to check Schedule XV for updates.
• Understanding Lock-in Periods: Certain investments, such as PPF and ELSS funds, come with lock-in periods, so early withdrawal restrictions should be considered.

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Food for thought

The renumbering of 80C deductions into Section 123 under the Income-Tax Bill, 2025 does not change the actual tax benefits but enhances clarity and makes tax planning more efficient.

By leveraging eligible investments such as life insurance, PPF, ELSS, and NSC, taxpayers can continue to optimize tax savings while securing their financial future. Staying updated on tax law changes and referring to the official Income-Tax Bill, 2025 ensures compliance and maximized benefits.

For more details, refer to the Income-Tax Bill, 2025.

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