Legal Reference
Sections 123-145 (Chapter VIII deductions), ITA 2025 | All Chapter VIII deductions available only in OLD regime | Standard deduction Rs 75K and employer NPS Section 132 available in BOTH regimes
1. Chapter VIII: Old Regime Only
All deductions under Chapter VIII of ITA 2025 (equivalent to Chapter VI-A of ITA 1961) are available ONLY under the old tax regime. If you choose the new regime, you cannot claim any of these deductions — except the standard deduction Rs 75,000 and employer NPS contribution under Section 132, which are outside Chapter VIII.
2. Section 123 (80C) — Rs 1.5 Lakh Basket
The most-used deduction — a basket of eligible investments and payments, subject to an overall limit of Rs 1.5 lakh:
- ELSS mutual funds (3-year lock-in, best returns)
- PPF contributions (15-year, EEE — fully tax-free)
- Life insurance premium (for self, spouse, children)
- NPS Tier-I contribution
- NSC (National Savings Certificate)
- Tax-saving bank FD (5-year lock-in)
- Sukanya Samriddhi Yojana deposits
- Home loan principal repayment
- Stamp duty and registration on property purchase
- Tuition fees for children (up to 2 children)
- EPF employee contribution
- ULIP premium
3. Key Deductions Beyond Section 123
| Section | Deduction | Limit |
|---|
| Section 125(1B) | NPS Tier-I extra deduction | Rs 50,000 (over Section 123) |
| Section 126 (80D) | Health insurance premium (self/family) | Rs 25,000 (Rs 50,000 senior) |
| Section 126 (80D parents) | Health insurance for senior citizen parents | Additional Rs 50,000 |
| Section 129 (80E) | Education loan interest (higher education) | Full interest, 8 years |
| Section 130 (80EEB) | Electric vehicle loan interest | Rs 1,50,000 |
| Section 131 (80G) | Donations to approved funds | 50%/100% with/without limit |
| Section 135 (80GG) | Rent paid (no HRA, self-employed) | Lowest of 3 criteria |
| Section 127 (80DD) | Disabled dependent | Rs 75,000/Rs 1,25,000 |
| Section 128 (80DDB) | Medical treatment specified disease | Rs 40,000/Rs 1,00,000 senior |
4. Section 129 (80E): Education Loan Interest
Full interest on education loan (for higher education — graduation and above) is deductible — no monetary cap. The deduction is available for 8 consecutive years starting from the year of first interest repayment. Applicable to loans for self, spouse, children, and any student for whom the taxpayer is a legal guardian. Principal repayment is NOT deductible (only interest).
5. Section 135 (80GG): Rent Deduction Without HRA
Self-employed professionals and employees who do not receive HRA can claim rent deduction under Section 135 — the lowest of: (a) rent paid minus 10% of total income; (b) 25% of total income; (c) Rs 5,000 per month. This is particularly useful for freelancers and consultants who pay rent but have no HRA component in their income.
6. Which Is Better: Old or New Regime?
Old regime is better if total Chapter VIII deductions + home loan interest + HRA exceed Rs 3.75 lakh (the break-even point for income above Rs 15L). Below that threshold, the new regime lower slab rates win. Use the IT Portal regime comparison tool before deciding.
7. Why TaxClue
Maximising Chapter VIII deductions requires planning at the start of the Tax Year — not at ITR filing time. TaxClue provides annual tax planning, deduction optimisation, and ITR filing. Contact us under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What are Chapter VIII deductions?
Chapter VIII of ITA 2025 contains all personal tax deductions — equivalent to Chapter VI-A of ITA 1961. Key deductions: Section 123 (80C) Rs 1.5L basket (ELSS, PPF, LIC, NPS, home loan principal); Section 125(1B) NPS extra Rs 50,000; Section 126 (80D) health insurance Rs 25,000-1,00,000; Section 129 (80E) education loan interest (full, 8 years); Section 130 (80EEB) EV loan Rs 1.5L; Section 131 (80G) donations. All Chapter VIII deductions available in old regime only.
What is the maximum deduction under Section 123?
Section 123 of ITA 2025 (equivalent to 80C) allows a maximum deduction of Rs 1,50,000 per year. This is a combined basket — ELSS, PPF, LIC, EPF employee contribution, home loan principal, tuition fees, NSC, tax-saving FD, ULIP, Sukanya Samriddhi, and NPS Tier-I all count towards this Rs 1.5L limit. There is no additional room beyond Rs 1.5L within Section 123 regardless of how many instruments you invest in.
What is the extra NPS deduction?
Over and above the Rs 1.5L Section 123 basket, individuals can claim an additional Rs 50,000 exclusive deduction for NPS Tier-I contributions under Section 125(1B) of ITA 2025. This extra Rs 50,000 is only for NPS — no other instrument qualifies for this additional slot. Total NPS deduction possible: Rs 1.5L under Section 123 (if not fully used by other instruments) + Rs 50,000 under Section 125(1B) = up to Rs 2 lakh.
Can I claim deduction for education loan interest?
Yes. Under Section 129 (80E equivalent) of ITA 2025, full interest on education loans for higher education (graduation and above) is deductible — with no monetary cap. The deduction is available for 8 consecutive years from the year of first interest payment. The loan can be for self, spouse, children, or any student for whom you are a legal guardian. Only interest is deductible — principal repayment does not qualify. Available in old regime only.
What is the EV loan deduction?
Under Section 130 (80EEB equivalent) of ITA 2025, interest paid on loans taken to purchase electric vehicles is deductible up to Rs 1,50,000 per year under the old regime. The loan must be sanctioned by a financial institution or NBFC. The deduction is available from the year of loan sanction. This provision was introduced to promote adoption of electric vehicles. The deduction is available for one loan — if you have multiple EV loans, only Rs 1.5L total is deductible.
