Section 123 of the Income-tax Act, 2025 allows an individual or Hindu undivided family a deduction of amounts paid or deposited in the tax year, aggregating the sums enumerated in Schedule XV, up to ₹1,50,000, subject to the conditions in that Schedule.
What section 123 does
Section 123 is the successor to section 80C — and it is remarkably short. The entire operative text is a single sentence: an individual or HUF is allowed a deduction of the whole amount paid or deposited in the tax year, being the aggregate of the sums enumerated in Schedule XV, not exceeding ₹1,50,000, subject to the conditions in that Schedule.
That brevity is the structural change. Under the 1961 Act, section 80C ran to dozens of sub-clauses listing qualifying investments, with section 80CCC and the section 80CCE ceiling sitting separately. The Income-tax Act, 2025 moves the entire list into Schedule XV and folds the ceiling into the section itself.
Practically, this means you can no longer answer 'does this qualify?' by reading the section. Schedule XV is the operative list, and it also carries the conditions — including the claw-back rules for insurance policies surrendered early and for housing property transferred within the specified period.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 80C | Qualifying investments and payments | 123 read with Schedule XV |
| 80CCC | Pension fund contributions | 123 read with Schedule XV |
| 80CCE | The combined ₹1,50,000 ceiling | 123 (built into the section) |
| 80CCD | Pension scheme of the Central Government | 124 |
| 80CCH | Agnipath Scheme contribution | 125 |
| 80A, 80AB, 80AC, 80B | Gateway conditions | 122 |
Section 123 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
The section itself — three elements
Section 123 has no sub-sections. It fixes three things: who (an individual or a Hindu undivided family), what (the whole of the amount paid or deposited in the tax year, being the aggregate of the sums enumerated in Schedule XV), and how much (not exceeding ₹1,50,000). Everything else is in the Schedule.
What Schedule XV lists — insurance and retirement
Life insurance premium on the life of the individual, spouse and any child (for an HUF, any member); sums under a deferred annuity contract without a cash option; sums deducted from Government salary for a deferred annuity, up to 20% of salary; contributions to a provident fund under the Provident Funds Act, 1925; contributions to a notified Central Government provident fund in the name of the individual, spouse or child; an employee's contribution to a recognised provident fund; and an employee's contribution to an approved superannuation fund.
What Schedule XV lists — savings schemes and market instruments
Subscription to a notified security or deposit scheme in the name of the individual or a girl child (including one for whom the individual is legal guardian); subscription to savings certificates under the Government Savings Banks Act, 1873; contributions to the Unit-linked Insurance Plan, 1971 and to a unit-linked insurance plan of LIC Mutual Fund; annuity plans of the Life Insurance Corporation or a notified insurer; subscription to units of specified Mutual Funds; and contributions to pension funds set up by such Mutual Funds, the Administrator or the specified company.
What Schedule XV lists — housing, tuition and deposits
Subscription to a deposit scheme or pension fund of the National Housing Bank; deposits with a public sector company providing long-term housing finance or with a housing or development authority; tuition fees paid to a University, college, school or other educational institution in India for the full-time education of any two children — excluding development fees, donations or similar payments; payment for the purchase or construction of a residential house property, subject to the conditions in paragraph 3 of the Schedule; and a term deposit of not less than five years with a scheduled bank.
How it interacts with the rest of the Act
Section 122 governs the claim: the deduction cannot exceed gross total income, and the general conditions apply. Section 124 deals separately with the pension scheme deduction, and section 125 with the Agnipath Scheme. And critically, section 202 — the new regime — restricts most Chapter VIII deductions, so whether section 123 is available at all depends on the regime under which tax is computed.
Worked example
An individual makes the following payments in tax year 2026-27 and is taxed outside section 202(1).
| Payment | Amount | Qualifies under Schedule XV? |
|---|---|---|
| Employee's contribution to a recognised provident fund | ₹72,000 | Yes |
| Life insurance premium on own and spouse's policies | ₹34,000 | Yes |
| Tuition fees for two children (excluding ₹18,000 of development fees) | ₹48,000 | Yes — development fees are expressly excluded |
| Development fees paid to the same school | ₹18,000 | No |
| Five-year term deposit with a scheduled bank | ₹25,000 | Yes |
| Three-year term deposit with a scheduled bank | ₹40,000 | No — the Schedule requires not less than five years |
| Tuition fees for a third child | ₹22,000 | No — the Schedule covers any two children |
| Total qualifying | ₹1,79,000 | |
| Deduction under section 123 | ₹1,50,000 | Capped by the section |
₹29,000 of qualifying payments is wasted because of the ceiling, and a further ₹80,000 of actual spending never qualified at all. Had the same taxpayer been taxed under section 202(1), the position would need to be tested against the restrictions in that section before claiming anything.
Compliance checklist and due dates
- Read Schedule XV, not section 123, to decide whether a payment qualifies — the list and the conditions are both there.
- Confirm the regime first. Section 202 restricts most Chapter VIII deductions, so check it before planning around section 123.
- Claim only tuition fees — development fees, donations and similar payments are expressly excluded, and the relief covers any two children.
- Ensure bank term deposits are for not less than five years.
- For the housing payment, satisfy the conditions in paragraph 3 of Schedule XV, including the restriction on transferring the property.
- Remember the deduction is on a paid or deposited basis in the tax year, not on an accrual basis.
- File the return by the section 263(1) due date and make the claim in it, as section 122 requires.
Common mistakes
- Searching section 123 for the qualifying list. It is in Schedule XV.
- Including development fees or school donations with tuition fees.
- Claiming tuition fees for more than two children.
- Treating any bank fixed deposit as qualifying — only a term deposit of five years or more does.
- Assuming section 123 is available under the default new regime without checking section 202.
- Confusing section 123 with section 124; employer and employee pension scheme contributions are a separate deduction.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.