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.

© Vipin Nair. This guide is for reading online only. Copying, downloading, printing and redistribution are not permitted. For study and general reference; not legal, tax or investment advice.