Library / Income-tax Act, 2025: The Professional's Master Guide

16. Deductions (Sections 122 to 154)

Chapter VI-A deductions of the old Act are now in sections 122 to 154, and Schedule XV lists the eligible investments for section 123. Most are available only in the old regime. Deductions cannot exceed gross total income and are not allowed against special rate incomes like STCG under section 196 or LTCG.

Deduction	New	Old	Limit (broad)	New regime?
LIC, PF, PPF, ELSS, tuition fees, home loan principal	123	80C, 80CCC	Rs. 1,50,000 combined	No
Own NPS contribution (additional)	124	80CCD(1B)	Rs. 50,000	No
Employer NPS contribution	124	80CCD(2)	14% of salary (new), 10% (old)	Yes
Agniveer Corpus Fund	125	80CCH	Full contribution	Yes
Health insurance	126	80D	Rs. 25,000 (Rs. 50,000 senior); parents extra	No
Disabled dependant	127	80DD	Rs. 75,000 or Rs. 1,25,000	No
Specified diseases	128	80DDB	Rs. 40,000 (Rs. 1 lakh senior)	No
Education loan interest	129	80E	Full interest for 8 years	No
Donations	133	80G	50% or 100%, some with 10% cap	No
Rent paid (no HRA)	134	80GG	Up to Rs. 60,000 a year	No
Political contributions	136, 137	80GGB, 80GGC	Full amount, not in cash	No
Eligible start-ups	140	80-IAC	100% for 3 of first 10 years	Not with section 200
Additional employee cost	146	80JJAA	30% of additional cost for 3 years	Yes
IFSC units	147	80LA	100% for 10 of 15 years	Check with section 200
Inter-corporate dividends	148	80M	Dividend received, to the extent distributed onward	See Corporate part
Savings bank / senior citizen interest	153	80TTA / 80TTB	Rs. 10,000 / Rs. 50,000	No
Person with disability	154	80U	Rs. 75,000 or Rs. 1,25,000	No

Illustration 83: Health insurance for parents

Suresh (45) pays Rs. 28,000 premium for his family plus Rs. 4,000 for a health check up, and Rs. 55,000 premium for his senior citizen parents.

Family: limit Rs. 25,000 (the check up allowance of Rs. 5,000 sits inside it). Allowed Rs. 25,000. Parents: limit Rs. 50,000. Allowed Rs. 50,000. Total under section 126: Rs. 75,000 (old regime only).

Illustration 84: Additional employee cost

A company taxed under section 200 hires 20 new employees in Tax Year 2026-27, each earning Rs. 20,000 a month and employed for more than 240 days, with salary paid through bank. Additional employee cost = Rs. 48 lakh. Deduction under section 146 = 30% = Rs. 14,40,000 this year and in each of the next two years.

16.1 Section 123 (old 80C, 80CCC) in detail

The overall limit is Rs. 1,50,000 for the aggregate of sections 123 and 124(1) (own NPS contribution within the 10% or 20% limit). Schedule XV lists the eligible payments. The most common are:

Payment	Conditions
Life insurance premium	On life of self, spouse or children (HUF: any member). For policies issued after 1 April 2012, premium up to 10% of sum assured
EPF (employee share), PPF, Sukanya Samriddhi	PPF for self, spouse, children; SSY for girl child
ELSS mutual funds	3-year lock-in
5-year tax saver bank deposit, NSC, Senior Citizens Savings Scheme	Lock-in as per scheme
Tuition fees	Full-time education of up to 2 children in India; excludes development fees and donations
Home loan principal, stamp duty and registration	For a residential house; if the house is sold within 5 years, deductions claimed are reversed and taxed in the year of sale
Pension plans of LIC and other insurers	Old 80CCC; pension received later is taxable

Deductions are allowed on the basis of payment during the year, from income chargeable to tax. They are available only in the old regime.

16.2 Section 124: pension schemes

Contribution	Limit	Regime
Employee own contribution to NPS	10% of salary (basic plus DA); 20% of gross total income for self employed; within the Rs. 1.5 lakh limit	Old only
Additional own contribution	Rs. 50,000 over and above Rs. 1.5 lakh	Old only
Employer contribution	14% of salary (new regime, also for government), 10% (old regime, non-government)	Both

16.3 Section 126: health insurance

Payment	Limit
Premium for self, spouse, dependent children	Rs. 25,000 (Rs. 50,000 if any of them is a senior citizen)
Premium for parents	Additional Rs. 25,000 (Rs. 50,000 if a parent is a senior citizen)
Preventive health check up	Up to Rs. 5,000 within the above limits; cash allowed
Medical expenditure for senior citizens without insurance	Up to Rs. 50,000 within the limits
Payment mode	Any mode other than cash (except check up)

16.4 Section 133: donations

Category	Deduction	Examples
A	100%, no qualifying limit	PM National Relief Fund, PM CARES Fund, National Defence Fund, Swachh Bharat Kosh, Clean Ganga Fund
B	50%, no qualifying limit	Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, Rajiv Gandhi Foundation (as notified)
C	100%, subject to 10% of adjusted gross total income	Government or approved bodies for family planning, Indian Olympic Association
D	50%, subject to 10% of adjusted gross total income	Approved charitable trusts and institutions, renovation of notified temples, mosques, gurudwaras, churches

Adjusted gross total income = gross total income less LTCG, STCG under section 196, other deductions under sections 122 to 154 (except section 133), and certain other incomes. Cash donations above Rs. 2,000 are not allowed. The donee files a statement of donations and issues Form 114 (old 10BE) to the donor; the deduction is allowed as per the statement.

Illustration 85: Donation with 10% cap

Gross total income Rs. 10,00,000, including LTCG of Rs. 2,00,000. Deductions under section 123 of Rs. 1,50,000. Donation of Rs. 1,20,000 to an approved trust (category D).

Adjusted GTI = 10,00,000 less 2,00,000 less 1,50,000 = Rs. 6,50,000. Qualifying limit = 10% = Rs. 65,000. Qualifying amount = lower of Rs. 1,20,000 and Rs. 65,000 = Rs. 65,000. Deduction at 50% = Rs. 32,500.

16.5 Section 134 (old 80GG): rent without HRA

For a self employed person or an employee who does not receive HRA, and who does not own a house at the place of work, the deduction is the least of: Rs. 5,000 a month; 25% of adjusted total income; and rent paid less 10% of adjusted total income.

Illustration 86: Rent deduction

Adjusted total income Rs. 4,80,000; rent paid Rs. 1,20,000. Least of Rs. 60,000; Rs. 1,20,000 (25%); and Rs. 72,000 (1,20,000 less 48,000) = Rs. 60,000.

16.6 Section 146 (old 80JJAA): conditions

Available to a business liable to tax audit; not to a business formed by splitting up or reconstruction, or on transfer of an existing business.
Additional employee: monthly emoluments up to Rs. 25,000, employed for 240 days or more in the year (150 days for apparel, footwear and leather), paid through banking channels, and participating in a recognised provident fund.
Deduction: 30% of additional employee cost for 3 years, starting from the year of employment. If the employee completes the required days only in the next year, the deduction starts from that year.
Accountant's report must be filed before the return due date.

16.7 Sections 127 and 154: disability

Section 154 (old 80U) is for the taxpayer who is a person with disability; section 127 (old 80DD) is for maintenance and medical treatment of a disabled dependant. Deduction is Rs. 75,000 for disability of 40% or more, and Rs. 1,25,000 for severe disability of 80% or more, on the basis of a certificate from a prescribed medical authority. Both are flat deductions, not linked to actual expenditure.

16.8 Profit-linked and other business deductions (sections 138 to 152)

These deductions reward specific activities. Many have sunset dates that have passed for new units, but existing units continue to claim them for their remaining years. They are not available under section 200 (companies) or section 202 (individuals), except where expressly allowed.

Section	Old	Activity	Broad benefit
138	80-IA	Infrastructure development, power generation and distribution (units within the time limits)	100% for 10 consecutive years out of 15 or 20
139	80-IAB	Developers of SEZs	100% for 10 of 15 years
140	80-IAC	Eligible start-ups	100% for 3 of first 10 years
141	80-IB	Certain industrial undertakings (mostly expired), mineral oil	As specified
142	80-IBA	Affordable housing projects approved by 31 March 2022	100% of profits from the project
143	80-IE	Undertakings in North-Eastern states (within time limits)	100% for 10 years
144	10AA	SEZ units that began operations by 30 June 2020	100% for 5 years, 50% for next 5, 50% of reinvested profits for next 5
145	80JJA	Collection and processing of bio-degradable waste	100% for 5 years
146	80JJAA	Additional employee cost	30% for 3 years
147	80LA	Offshore banking units and IFSC units	100% for 10 of 15 years (extended for OBUs by Finance Act 2026)
148	80M	Inter-corporate dividends	To the extent distributed
149	80P	Co-operative societies	Various activity based deductions
151	80QQB	Royalty of authors (other than textbooks)	Up to Rs. 3 lakh
152	80RRB	Royalty on patents registered in India	Up to Rs. 3 lakh

Key point

Profit-linked deductions are computed as if the eligible business were the only business of the assessee, and require an accountant's report before the return due date. The deduction is allowed only if claimed in a return filed by the due date.

Chapter summary

• Most deductions are available only in the old regime.

• Section 123 limit Rs. 1.5 lakh; section 124 adds Rs. 50,000 own NPS; employer NPS in both regimes.

• Section 133 donations have four categories and a 10% cap for some.

• Business deductions such as section 146 and profit-linked deductions have specific conditions and reports.