Tax Saving Options Under 80C (Now Section 123) for 2026-27
Best tax saving options under 80C, now Section 123 of the Income-tax Act, 2025: PPF, ELSS, NSC, SSY, EPF and more compared on returns, lock-in and tax.
In this article
The main tax saving options under 80C are PPF, ELSS mutual funds, EPF, NSC, Sukanya Samriddhi, tax-saver FDs, SCSS, life insurance premiums, home loan principal and children's tuition fees. Together they are capped at ₹1.5 lakh a year. From tax year 2026-27 this deduction is Section 123 of the Income-tax Act, 2025, and as before it is available only under the old tax regime.
What changed: 80C is now Section 123
The Income-tax Act, 2025 came into force on 1 April 2026. Old Chapter VI-A deductions moved to Chapter VIII. The familiar 80C now sits in Section 123, with eligible items listed in Schedule XV. The limit is still ₹1.5 lakh, and the old ₹1.5 lakh combined ceiling for 80C, 80CCC (pension plans) and 80CCD(1) (your own NPS contribution) carries over.
Related deductions also have new numbers:
- Section 124 (old 80CCD): NPS. The extra ₹50,000 for your own NPS contribution (old 80CCD(1B)) is in addition to the ₹1.5 lakh.
- Section 126 (old 80D): health insurance premiums. This is separate from the ₹1.5 lakh.
Returns for FY 2025-26 still use the old section numbers.
Is 80C still worth it?
Only if you are in the old regime, and the old regime only pays off with large total deductions. For example, at ₹15 lakh salary you need about ₹5.4 lakh of deductions and exemptions before the old regime beats the new one. Many people in the new regime find 80C irrelevant. Check new vs old tax regime first, then come back here if the old regime suits you.
The 80C options compared
Rates for small savings schemes are for October–December 2026 and are reset by the government every quarter.
| Option | Return (Oct–Dec 2026) | Lock-in | Tax on returns | Risk |
|---|---|---|---|---|
| PPF | 7.1% | 15 years (partial withdrawal from year 7) | Tax-free (EEE) | Sovereign |
| Sukanya Samriddhi (SSY) | 8.2% | Till daughter turns 21 (deposits for 15 years) | Tax-free (EEE) | Sovereign |
| EPF / VPF | Rate declared yearly by EPFO | Till retirement / job change rules | Mostly tax-free* | Government-backed |
| NSC | 7.7% | 5 years | Interest taxable | Sovereign |
| SCSS (age 60+) | 8.2% | 5 years | Interest taxable | Sovereign |
| Tax-saver bank FD | Varies by bank | 5 years | Interest taxable | DICGC cover up to ₹5 lakh |
| ELSS mutual fund | Market-linked | 3 years | LTCG 12.5% above ₹1.25 lakh a year | Equity risk |
| NPS (within ₹1.5 lakh) | Market-linked | Till 60, with limited exits | Partly taxable at exit | Moderate |
| Life insurance premium | Depends on policy | Policy term | Conditions apply | Varies |
*Interest on the employee's own EPF contributions above ₹2.5 lakh a year is taxable.
Payments that also count
These are not investments, but they use up the same ₹1.5 lakh:
- Home loan principal repayment, plus stamp duty and registration on a new house.
- Tuition fees for up to two children at a school, college or university in India (not coaching or development fees).
- Life insurance premiums for yourself, your spouse or children. For newer policies, the deductible premium is capped at 10% of the sum assured.
If your EPF contribution, home loan principal and children's fees already add up to ₹1.5 lakh, you have no room left. Investing more purely to "save tax" gives no extra deduction.
Choosing between them
- Guaranteed and tax-free: PPF. It is good for long-term, low-risk money. Its 15-year horizon and EEE status make it a strong debt anchor.
- Saving for a daughter: SSY. It currently pays the highest small-savings rate, 8.2%, and the returns are tax-free.
- Highest growth potential, shortest lock-in: ELSS. It is suitable if you can accept equity volatility. Each SIP instalment is locked in for three years from its own date.
- Fixed 5-year horizon: NSC or a tax-saver FD. Remember that the interest is taxable at your slab rate, which cuts post-tax returns sharply in the 30% bracket.
- Retirees: SCSS. It pays 8.2% with quarterly payouts, though the interest is taxable.
For a closer look at the three most popular choices, read PPF vs FD vs ELSS.
Worked example 1: how much tax does ₹1.5 lakh save?
The saving depends on your marginal old-regime slab, plus 4% cess:
| Old-regime marginal slab | Tax saved on ₹1.5 lakh | With 4% cess |
|---|---|---|
| 5% | ₹7,500 | ₹7,800 |
| 20% | ₹30,000 | ₹31,200 |
| 30% | ₹45,000 | ₹46,800 |
Someone in the 30% slab who uses the full limit saves ₹46,800 a year. In the 5% slab the saving is only ₹7,800, too small to justify a long lock-in on its own.
Worked example 2: PPF over 15 years
Suppose you deposit ₹1.5 lakh in PPF before 5 April every year for 15 years, and the rate stays at 7.1%. PPF interest is calculated on the lowest balance between the 5th and the end of each month and credited annually.
- Total invested: ₹1,50,000 × 15 = ₹22,50,000
- Maturity value: ₹1,50,000 × [(1.071^15 − 1) / 0.071] × 1.071 ≈ ₹40,68,000
- Interest earned: about ₹18,18,000, fully tax-free
In the 30% slab, the deduction alone saves ₹46,800 a year, or about ₹7 lakh over 15 years, on top of the tax-free interest. The PPF rate is revised quarterly, so treat this as an illustration. Model your own deposits with the PPF calculator.
Filling the ₹1.5 lakh limit: a sample approach
Take a salaried person in the old regime whose EPF deduction is ₹21,600 a year (12% of a ₹15,000 monthly basic) and who has no home loan or school fees. That leaves ₹1,28,400 of room. One sensible way to fill it is by goal rather than by product:
- Long-term safety: ₹60,000 a year into PPF (₹5,000 a month, deposited before the 5th).
- Long-term growth: ₹60,000 a year into an ELSS fund (₹5,000 a month by SIP).
- Protection: ₹8,400 left for a term insurance premium, which also counts.
This mix gives a sovereign, tax-free base alongside equity exposure, and keeps liquidity reasonable because each ELSS instalment unlocks after three years. It is an illustration, not a recommendation. Your own split should depend on your goals, existing assets and risk tolerance.
Common mistakes
- Rushing in March. Last-minute buyers often end up with unsuitable insurance policies. Spread investments through the year, for example with a monthly ELSS SIP or PPF deposits.
- Counting the same rupee twice. The ₹1.5 lakh limit is shared across all items, not per item.
- Forgetting the new regime. If you are in the new regime, Section 123 investments give no deduction. Judge them only on their returns.
- Missing the PPF 5th-of-month rule. Deposits made after the 5th earn no interest for that month.
Key takeaways
- 80C is now Section 123 (with Schedule XV) of the Income-tax Act, 2025. The limit is still ₹1.5 lakh, and only under the old regime.
- NPS gets an extra ₹50,000 under Section 124 (old 80CCD(1B)), and health insurance has its own limit under Section 126 (old 80D).
- PPF (7.1%) and SSY (8.2%) are tax-free and sovereign-backed. ELSS has the shortest lock-in. NSC, SCSS and FD interest is taxable.
- In the 30% slab, the full ₹1.5 lakh saves ₹46,800 a year. In the 5% slab it saves just ₹7,800.
- Check EPF, home loan principal and tuition fees first. They may already fill the limit.
Frequently asked questions
What is Section 80C called under the Income-tax Act, 2025?
From tax year 2026-27, the deduction formerly under Section 80C is in Section 123, read with Schedule XV, of the Income-tax Act, 2025. The ₹1.5 lakh limit and the list of eligible investments and payments are broadly the same.
Can I claim 80C deductions under the new tax regime?
No. Section 123 (old 80C) deductions are allowed only if you opt for the old tax regime. The new regime under Section 202 does not allow them.
Which 80C option has the shortest lock-in?
ELSS mutual funds have the shortest lock-in at three years from the date of each investment. Tax-saver FDs and NSC lock in for five years, and PPF runs for 15 years with partial withdrawals allowed from the seventh financial year.
Is the ₹50,000 NPS deduction part of the ₹1.5 lakh 80C limit?
No. The extra ₹50,000 for your own NPS contribution (old Section 80CCD(1B), now within Section 124) is over and above the ₹1.5 lakh limit, so an old-regime taxpayer can claim up to ₹2 lakh in total.
Does Kisan Vikas Patra qualify for 80C?
No. KVP currently earns 7.5% and is a government-backed small savings scheme, but investments in it do not qualify for the Section 123 (old 80C) deduction.
This article is for general education and is not personalised financial, tax or legal advice. Rates and rules are as of 19 Oct 2026; confirm current terms with your lender, AMC or a qualified adviser.
