Loading courses
This lesson covers the most used deduction in Indian income tax. By the end you will be able to:
Limits, rates and the tax saved are filled in from the BullTimes tax engine and this quarter's notified scheme rates, for FY 2026-27 (Tax Year 2026-27). They update when the rules do.
Section 123 (formerly 80C) lets an individual or a HUF deduct up to ₹1,50,000 a year from gross total income, for specific investments and expenses. It is available only under the old regime. Under the new regime, which is the default, it saves nothing.
You can claim up to ₹1,50,000 per financial year (1 April to 31 March). The deduction reduces your taxable income, not your tax directly.
Example: On a salary of ₹9 lakh under the old regime, investing ₹1,50,000 in eligible options brings income before the standard deduction down to ₹7.5 lakh.
The limit is shared. It is one ceiling across every item in this lesson, not one per instrument. Your own NPS contributions under Section 124 (formerly 80CCD(1)) also count inside it; Section 124 (formerly 80CCD(1B)) adds a separate ₹50,000 on top.
The saving is the deduction times your old-regime slab rate, plus 4% cess. For the full ₹1,50,000:
| Your old-regime slab rate | Tax saved |
|---|---|
| 5% | ₹7,800 |
| 20% | ₹31,200 |
| 30% | ₹46,800 |
Surcharge, for very high incomes, is not included. If your income is low enough for the s.87A rebate, the deduction may save nothing at all.
Your own EPF contribution (12% of basic salary) counts automatically. The employer's contribution does not count towards your limit.
Example: On a basic salary of ₹60,000 a month, the employee contribution is ₹7,200 a month, ₹86,400 a year. That uses ₹86,400 of the ₹1,50,000 before you invest anything else.
Government-backed, with tax-free interest and maturity. The rate is notified every quarter: 7.1% for October–December 2026.
Example: ₹1,50,000 a year for 15 years at 7.1%, if the rate stayed there throughout, would come to about ₹40,68,209. The rate will change over 15 years, so treat this as an illustration.
You can open a PPF account at a post office or an authorised bank, with a minimum of ₹500 a year.
Mutual funds that invest mainly in shares, with a 3-year lock-in, the shortest among Section 123 (formerly 80C) options. Returns are not guaranteed and can be negative over short periods. BullTimes does not name or rank funds.
Premiums for life cover on yourself, your spouse or your children qualify, up to 10% of the sum assured for policies issued after 1 April 2012.
Example: On a policy with a sum assured of ₹15 lakh, at most ₹1.5 lakh of premium a year counts.
Five-year bank deposits with a lock-in. The deduction is on the amount deposited; the interest earned is taxable every year at your slab rate.
Example: Depositing ₹1,50,000 at the 30% slab saves ₹46,800 in the year of deposit, under the old regime.
Five years, interest compounded yearly and paid at maturity: 7.7% for October–December 2026, fixed for the term at the rate on the day you invest.
For investors aged 60 or more (earlier for some retirees): 8.2% for October–December 2026, paid quarterly.
For a girl child under 10: 8.2% for October–December 2026, with tax-free interest and maturity.
The principal part of your home loan EMIs qualifies (the interest is a separate deduction under Section 22 (formerly 24(b))).
Example: If ₹1.2 lakh of a year's EMIs goes to principal, that ₹1.2 lakh counts towards Section 123 (formerly 80C).
Full-time tuition fees for up to two children, excluding development fees and donations.
These show how the one limit fills up for different people. They are illustrations, not recommendations: the right mix depends on your goals, risk and time horizon.
Note: Rates and rules change; scheme rates are notified quarterly. This lesson is educational, not advice: consult a qualified adviser about your own situation.