I-T Bill 2025: Deduction of SSY, NPS, EPF & ELSS now fall under section 123

Finance Minister Nirmala Sitharaman tabled the Income Tax Bill 2025 in the Lok Sabha on February 13, 2025. The new bill, which is replacing the Income Tax Act of 1961, is slated to come into effect on April 1, 2026.

One of the key highlights of the new bill is the restructuring of tax deductions available under Section 80C of the Income-Tax Act, 1961. These deductions have been moved to a new section, Clause 123, in the Income Tax Bill 2025. The Central Board of Direct Taxes (CBDT) has said that this change aims to simplify the process for taxpayers by creating a more transparent and organised system.

“The deduction limit remains clearly stated within the section, while the schedule provides an easy-to-understand breakdown of

eligible deductions,” the Central Board of Direct Taxes said.
 
Sujit Sudhakar Bangar, founder, TaxBuddy.com explains key highlights of the changes
 
Renumbering and Reorganisation:
 
Section 80C has been renumbered as Section 123 in the new bill.
 
Eligible deductions are now systematically
detailed in Schedule XV, providing enhanced transparency and organization. 
 
Deduction limit:
 
The deduction cap remains unchanged at Rs 1.5 lakh per financial year under Section 123. 
 
Eligible investments and expenditures:
 
The following investment and expenditure types qualify for deductions under Section 123:

Life insurance and annuity plans:
 
Premiums for life insurance policies.
 
Payments made under a deferred annuity contract (excluding annuity plans).
 
Deductions from government salaries to secure deferred annuities for spouses or children (up to 20 per cent of salary).
 
Contributions toward an annuity plan offered by LIC or other government-approved insurers.
 
Provident fund and pension schemes:
 
Employee contributions to provident funds.
 
Employee contributions to recognised superannuation funds.
 
Deposits into pension funds regulated by the National Housing Bank.
 
Contributions to pension schemes notified by the Central Government (e.g., NPS).
 
Government-sponsored savings schemes:

Investments in government-notified securities or deposit schemes in the name of an individual or their girl child (e.g., Sukanya
Samriddhi Yojana).
 
Subscriptions to National Savings Certificates (NSC)
 
Investments in bonds issued by NABARD.
 
Deposits under the Senior Citizen Savings Scheme Rules, 2004.
 
Five-year fixed deposits in post office accounts under the Post Office Time Deposit Rules, 1981.
 
Fixed-term deposits with a minimum duration of five years.
 
Equity & market-linked investments:
 
Investments in Equity-Linked Savings Schemes (ELSS).
 
Payments for Unit-Linked Insurance Plans (ULIP).
 
Education and housing:
 
Tuition fees for full-time education of up to two children at universities, colleges, schools, or other recognised institutions in India (excluding development fees, donations, or similar payments).

Investments in the purchase or construction of
residential property that generates taxable income under ‘Income from house
property.’
 
Additional eligible deduction:
 
Public Provident Fund (PPF) contributions continue to qualify for deductions under Section 123, as they did under Section 80C.
 
Let us have a look at significant revisions in the Income-Tax Bill, 2025:
 
The bill eliminates over 300 outdated provisions, including Section 80CCA (deductions for National Saving Scheme investments) and Section 80CCF (deductions for long-term infrastructure bond investments).
 
Life insurance premiums, provident fund contributions, and deferred annuities are now categorised under Clause 123.

Home loan interest deductions are split between Clause 130 and Clause 131.
 
Education loan interest deductions have been moved to Clause 129.
 
Pension scheme contributions are now classified under Clause 124.
 
Deductions for the Agnipath Scheme are now included under Clause 125.
 
Several other deductions that were part of Section 80C have been reassigned to specific new clauses.
 
Experts advise taxpayers to stay updated on any modifications or amendments to ensure compliance with the new provisions.


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