If you have ever filled in an investment declaration, you know Section 80C. Under the Income Tax Act, 2025 it is now Section 123, and Section 80CCC - pension policies - has been folded into it rather than sitting alongside as a separate provision.
The cap is unchanged at Rs. 1,50,000 a year, and it remains the most misunderstood number in Indian salary taxation.
What the cap actually means
The Rs. 1,50,000 is a combined ceiling across everything in the basket, not a limit per instrument. Employees routinely assume that Rs. 1,50,000 in PPF and Rs. 1,50,000 in ELSS gives Rs. 3,00,000 of deduction. It gives Rs. 1,50,000.
This matters more than it sounds, because for most salaried employees a large part of the basket is filled before they invest anything at all.
What qualifies
Employees' Provident Fund - your own contribution, not your employer's
Public Provident Fund
Life insurance premium - for yourself, spouse or children
Equity Linked Savings Scheme mutual funds
National Savings Certificate
Sukanya Samriddhi Yojana
Unit Linked Insurance Plans
Housing loan principal repayment - the principal only, not the interest
Five-year tax-saver fixed deposits
Senior Citizens Savings Scheme
Children's tuition fees - up to two children, tuition only
Pension policies - annuity plans, merged in from the former Section 80CCC
The part employees miss
Your EPF contribution is already in the basket. At 12% of Basic plus DA, an employee with a basic of Rs. 9,00,000 is contributing Rs. 1,08,000 a year to EPF without doing anything. That leaves only Rs. 42,000 of headroom.
Housing loan principal is in the basket too. Someone repaying a home loan often finds EPF and principal repayment together exceed Rs. 1,50,000, which means every rupee of additional ELSS or PPF investment buys no further deduction.
Before recommending a tax-saving investment to anyone, the first question is what their EPF and loan principal already consume. Frequently the answer is: all of it.
What does not qualify
Home loan interest - that is a separate provision under house property income, not part of this basket
Development fees, donations or transport charges billed alongside school tuition
Insurance premiums for parents or siblings
Contributions to a third child's tuition
Employer's EPF contribution - it is not your payment
The Rs. 50,000 that sits outside
The additional NPS contribution - formerly Section 80CCD(1B) - gives up to Rs. 50,000 over and above the Rs. 1,50,000 basket. It is genuinely additional, which makes it the single most efficient remaining deduction for anyone whose basket is already full from EPF.
For an employee at the 30% marginal rate with a full basket, Rs. 50,000 into NPS is worth roughly Rs. 15,600 including cess. There is little else in the old regime that does that once the basket is exhausted.
The trade-off is liquidity: NPS is locked until retirement with limited partial withdrawal, and the eventual annuity portion is taxable. It is a tax deduction attached to a long commitment, not a savings account.
Old regime only
None of this exists under the new regime. Section 123, the additional NPS deduction, health insurance under Section 126 - all are old regime deductions.
This is the pivot on which the regime choice turns. If your basket is full at Rs. 1,50,000, you claim the Rs. 50,000 NPS on top, and you have meaningful HRA, the old regime becomes competitive. Without those, the new regime's wider slabs and Rs. 75,000 Standard Deduction usually win comfortably.
For rough orientation: a salaried employee on Rs. 19,00,000 gross needs somewhere near Rs. 6,75,000 of total old-regime deductions just to match the new regime. A full Section 123 basket plus the additional NPS gets you Rs. 2,00,000 of that. The rest has to come from HRA, health insurance and home loan interest.
Practical notes for declaration season
Declare what you will actually invest, not what you hope to. An over-declaration in April means a large TDS catch-up in February and March when the proofs do not arrive.
Check your EPF number first. It is on your payslip. Subtract it from Rs. 1,50,000 before deciding how much to invest.
Keep proof for the year claimed. A five-year FD receipt from a previous year does not support this year's claim.
See where you land
Our Tax Regime Calculator itemises the full Section 123 basket, applies the Rs. 1,50,000 cap, adds the separate Rs. 50,000 NPS deduction and shows the old and new regimes side by side for Tax Year 2026-27.
Investment decisions are not only tax decisions. Before locking money into a fifteen-year PPF or a retirement-locked NPS account for a deduction, discuss the wider picture with a chartered accountant or a qualified financial adviser.