Life Insurance, PPF, ELSS and Other Investments Deduction up to Rs 1.5 Lakh: Income Tax Act 2025 (Section 123)

Section 123 of the Income Tax Act, 2025 lets an individual or a Hindu undivided family (HUF) deduct the amounts paid or deposited in the tax year on the items listed in Schedule XV, up to a combined limit of Rs 1,50,000. The list covers life insurance premium, provident fund contributions, home loan principal and stamp duty, children's tuition fees, five-year term deposits, notified pension schemes and a few more. The deduction is available only if you are taxed under the old-style computation, not under the default new regime of section 202(1).

Many readers know this deduction as section 80C of the repealed Income-tax Act, 1961. The Income Tax Department's TDS FAQ says deductions earlier under section 80C are now referred to as Schedule XV read with section 123 of the 2025 Act, and the Rs 1,50,000 ceiling is the same. Everything below comes from the Act as amended by the Finance Act, 2026 (tax year 2026-27 onwards), with the section or paragraph next to each point. Last reviewed against that text on 10 November 2026. It is information, not tax advice.

What is the section 123 deduction and who can claim it?

Section 123 gives a deduction of the whole amount paid or deposited in the tax year, being the aggregate of the sums enumerated in Schedule XV, as does not exceed Rs 1,50,000. It is claimed while computing total income. Only an individual or an HUF can claim it. A company, firm or LLP cannot.

The Rs 1,50,000 is one ceiling for everything in Schedule XV together. If you pay Rs 60,000 into a provident fund and Rs 45,000 of insurance premium, those two add up inside the same Rs 1,50,000, not each against its own limit.

Is section 80C now section 123, and has the limit changed?

For tax year 2026-27 onwards, claim and declare this deduction under section 123 read with Schedule XV, not under the 1961 Act number. Section 123 itself states the limit as Rs 1,50,000. Employers' investment declarations for 2026-27 should cite the 2025 Act as well. Returns for years up to 2025-26 are still governed by the 1961 Act, so use the old numbering only for those years.

Is the deduction available under the new tax regime?

Not under the default regime. Section 202(1) sets slab rates for individuals and HUFs, and section 202(2)(a)(xii) says total income is computed without any deduction under Chapter VIII, except section 124(1) and 124(2), section 125(2) and section 146. Section 123 is not in that exception list. A person who exercises the option under section 202(4) is outside section 202(1) and computes total income in the usual way, where section 123 applies.

Which route leaves you with less tax depends on your whole income. Work that out for the specific year before you decide to invest only for the deduction. For other deductions that stay available, see our guide to the standard deduction and other deductions.

Which investments and payments qualify under Schedule XV?

Paragraph 1 of Schedule XV has clauses (a) to (z). Grouped by what you actually pay, they look like this.

Group	What qualifies	Schedule XV, para 1
Life insurance and annuity	Premium on a life policy (individual: self, spouse, child; HUF: any member); deferred annuity with no cash-payment option; annuity plan of LIC or a notified insurer; government employee salary deduction for deferred annuity, up to 20% of salary	(a), (b), (c), (l), (x)
Provident and superannuation funds	Contribution to a provident fund under the Provident Funds Act, 1925; a provident fund account set up and notified by the Central Government (self, spouse, child; HUF: any member); an employee's contribution to a recognised provident fund; an employee's contribution to an approved superannuation fund	(d), (e), (f), (g)
Notified savings schemes	Notified security or deposit scheme (including for a girl child); notified savings certificate; Senior Citizen Savings Scheme deposit; five-year Post Office Time Deposit; five-year scheduled bank term deposit under a notified scheme; NABARD bonds, if notified	(h), (i), (u), (v), (s), (t)
Mutual fund and equity linked	Unit Linked Insurance Plan, 1971 of UTI; unit-linked plan of LIC Mutual Fund (notified); units of mutual funds in Schedule VII Sl. No. 20 or 21 under notified plans; notified pension funds of such mutual funds; equity shares or debentures of an approved eligible issue; approved mutual fund units invested only in an eligible issue	(j), (k), (m), (n), (z)
Housing	Payments for purchase or construction of a residential house (home loan principal, instalments to a development authority or society, stamp duty and registration fee); notified National Housing Bank and housing finance deposit schemes	(r), (o), (p)
Children's education	Tuition fees paid by an individual (not development fees or donations) to a university, college, school or other institution in India for full time education of any two children	(q)
Pension schemes	Contribution to a notified pension scheme, up to 10% of salary (including dearness allowance) for an employee, or 20% of gross total income for anyone else; additional account of a Central Government employee under the notified scheme, for a fixed period of at least three years	(y), (w)

PPF and ELSS. Schedule XV does not use the names "PPF" or "ELSS". Clause (e) covers a provident fund account set up and notified by the Central Government, and clauses (m) and (z)(ii) cover units of mutual funds referred to in Schedule VII (Table Sl. No. 20 or 21) under notified plans or approved issues. Whether a particular scheme or fund qualifies therefore depends on the Central Government notification for it. This guide has not checked those notifications, so confirm the scheme's status before you rely on it.

How is the Rs 1,50,000 limit applied?

What are the limits on life insurance premium?

Paragraph 2 of Schedule XV says the deduction applies only to the part of the premium that is within a percentage of the actual capital sum assured. This is the minimum amount assured on the insured event during the term, ignoring premiums to be returned and any bonus above the sum actually assured.

Policy issued	Premium counts up to	Reference
On or before 31 March 2012	20% of actual capital sum assured	Para 2(1)(a)
On or after 1 April 2012	10% of actual capital sum assured	Para 2(1)(b)
On or after 1 April 2013, covering a person with disability or severe disability (section 154), or a person with a disease specified in rules under section 128	15% of actual capital sum assured	Para 2(1)(c)

These percentage limits do not apply to a contract for a deferred annuity. Also, "insurance" includes a policy that pays a specified sum on maturity even if it only returns premiums on earlier death, and a policy taken for a minor's benefit (para 6(c)).

How is the deduction calculated? Three worked examples

Example 1: several investments, one limit (tax year 2026-27). Ravi, a salaried individual, has opted out of the default regime. His gross total income is Rs 12,00,000. Assume he has no other deductions and every item below qualifies under Schedule XV.

Step	Item	Amount (Rs)
1	Contribution to a notified provident fund account (clause 1(e))	60,000
2	Life insurance premium. Policy issued in 2020, sum assured Rs 10,00,000, so limit is 10% = Rs 1,00,000. Premium of Rs 45,000 is within it	45,000
3	Tuition fees for two children (clause 1(q))	30,000
4	Units of a notified mutual fund plan (clause 1(m))	50,000
	Total of qualifying amounts	1,85,000
	Section 123 limit	1,50,000
	Deduction allowed (lower of the two)	1,50,000
	Total income: 12,00,000 less 1,50,000	10,50,000

Rs 35,000 (1,85,000 less 1,50,000) earns no deduction. It does not carry forward.

Example 2: the insurance premium cap bites. Anil pays an annual premium of Rs 50,000 on a policy for his own life. The sum assured is Rs 4,00,000.

Policy issued	Cap	Premium that counts (Rs)
1 August 2022 (10% rule)	10% x 4,00,000 = 40,000	40,000 (Rs 10,000 does not count)
1 October 2023, insured is a person with disability (15% rule)	15% x 4,00,000 = 60,000	50,000 (all of it)
31 March 2012 (20% rule)	20% x 4,00,000 = 80,000	50,000 (all of it)

Only the amount that counts goes into the Rs 1,50,000 aggregate.

Example 3: pension scheme contributions, clause 1(y). This clause applies to a pension scheme notified by the Central Government.

Person	Cap basis	Cap (Rs)	Contribution (Rs)	Counts (Rs)
Employee whose terms provide for it, salary including DA Rs 7,20,000	10% of salary including DA (para 1(y)(i))	72,000	90,000	72,000
Self-employed individual, gross total income Rs 9,00,000	20% of gross total income (para 1(y)(ii))	1,80,000	1,00,000	1,00,000

The amount that counts still sits inside the Rs 1,50,000 aggregate of section 123. A separate deduction of up to Rs 50,000 for notified pension scheme deposits exists in section 124(3), but section 124(5) bars it for any amount already claimed under section 123.

What happens if you stop paying or sell early?

Paragraph 4 of Schedule XV takes the deduction back when you exit too soon. In the year the condition is met, the deductions already allowed in earlier years are deemed to be your income and taxed.

Payment	Deduction is reversed if	Schedule XV, para 4
Life insurance premium	You terminate the policy, or let it lapse without reviving it: for a single premium policy, within two years of commencement; otherwise before premiums have been paid for two years	Sl. No. 1
UTI Unit Linked Insurance Plan, 1971 or LIC Mutual Fund unit-linked plan	You terminate or stop contributing before contributions have been paid for five years	Sl. No. 2
House purchase or construction payments	You transfer the property before five years from the end of the tax year of possession, or receive back any such sum by refund or otherwise	Sl. No. 3
Approved eligible issue shares or debentures	You sell or transfer them within three years of acquisition (acquisition is the date your name enters the register of members or debenture holders)	Sl. No. 4

Paragraph 5 adds taxation on the way out for some items. Money withdrawn from a Senior Citizen Savings Scheme account or a five-year Post Office Time Deposit before five years from the date of deposit is taxable in the year of withdrawal, excluding interest already taxed earlier and amounts received by a nominee or legal heir on death (other than interest not taxed earlier). Amounts received from an annuity plan under clause 1(x) (surrender or pension) and from a notified pension scheme under clause 1(y) (closure, opt-out or pension, where not used to buy an annuity in the same year) are taxed when received.

Real-life examples

Karan stops paying a policy after one year. Karan claimed Rs 45,000 of premium in 2026-27 on a new policy, within the para 2 percentage limit. In 2027-28 he decides not to pay the second premium and does not revive the policy. Under para 4, Sl. No. 1, the policy ceased before premiums were paid for two years. The Rs 45,000 he deducted earlier is treated as his income in the year the condition is met, and taxed at the rates for that year.

Meena buys shares in an approved issue and sells in year two. Meena subscribes to shares in an eligible issue of capital approved by the Board and claims the amount under clause 1(z)(i). She sells them 20 months later. Para 4, Sl. No. 4 applies because the sale falls inside three years of acquisition, so the earlier deduction comes back as income in the year of sale. Had she held them for three years, no reversal would arise.

The Kapoor HUF insures a member. A HUF pays a premium on the life of one of its members. Clause 1(a)(ii) allows a premium on the life of any member of the HUF, so the HUF can claim it, within the para 2 percentage limit and the HUF's own Rs 1,50,000 ceiling. An individual, by contrast, can claim premium only on the life of self, spouse or child.

Suresh buys a flat and sells it early. Suresh claims Rs 80,000 of home loan principal repayment and stamp duty under clause 1(r) in the year he takes possession. He sells the flat after three years. Para 4, Sl. No. 3 reverses the deduction because the sale is within five years from the end of the tax year of possession. Note that para 3 excludes the admission fee and share cost for joining a society, and renovation or repairs after the completion certificate, occupation or letting.

Common mistakes

• Treating each item as having its own Rs 1,50,000. Section 123 is one aggregate limit for everything in Schedule XV.
• Claiming the full premium. Only the premium within 20%, 10% or 15% of the actual capital sum assured counts (para 2).
• Claiming for a parent or sibling. For an individual, life insurance, annuity and notified provident fund clauses name self, spouse and child. Check the clause before paying on someone else's behalf.
• Forgetting the lock-in reversals. Lapsing a policy, withdrawing early or selling shares or a house inside the periods in paragraph 4 brings the earlier deduction back as income.
• Double claiming. A bond investment taken into account for the capital gains exemption in section 85(1) cannot also get a section 123 deduction (section 85(5)). Section 124(5) similarly blocks a second claim for pension amounts.
• Assuming a scheme qualifies by its common name. Many clauses apply only to schemes "as may be notified". Check the notification for the scheme and year.

Quick reference

Point	Rule
Who can claim	Individual or HUF (section 123)
Overall limit	Rs 1,50,000, aggregate of all Schedule XV items
Insurance premium cap	20% (policy on or before 31 March 2012), 10% (on or after 1 April 2012), 15% (disability or specified disease cover, on or after 1 April 2013) of actual capital sum assured
Pension scheme cap, clause 1(y)	10% of salary incl. DA (employee) or 20% of gross total income (others)
Tuition fees	Any two children, full time education in India, excluding development fees and donations
Reversal periods	Insurance 2 years of premiums, shares 3 years, unit-linked plans 5 years of contributions, house 5 years from end of possession year
New regime	Not allowed under section 202(1); allowed if the section 202(4) option is exercised

How Finexo helps CAs with this

For a CA firm, the hard part with this deduction is the follow-up, not the sum. A client claims a premium this year, and two years later lapses the policy or sells the shares, and the reversal is missed. Finexo's practice management software lets you keep client tasks, document checklists and follow-up dates in one place, so a lock-in date can be tracked as a task against the client. It does not compute the deduction or file returns for you.

Where this is in the Act

• Section 123: deduction for life insurance premia, deferred annuity, contributions to provident fund and others, limit Rs 1,50,000
• Schedule XV, paragraph 1: sums that qualify (clauses (a) to (z))
• Schedule XV, paragraph 2: percentage limits on insurance premium; paragraph 3: house property payments
• Schedule XV, paragraphs 4 and 5: reversal of deduction and taxation of receipts; paragraph 6: definitions
• Section 124: Central Government pension scheme deduction (see sub-sections (3) and (5))
• Section 202(1), (2)(a)(xii) and (4): default new regime and the option to move out of it
• Section 85(5): no section 123 deduction for an investment already used for the capital gains exemption
• Schedule XI, paragraph 7: an employee's own contribution to a recognised provident fund is deducted as per section 123