Deductions — Part B: Payments (Sections 123–137)
Deductions — Part B: Payments
Complete guide to all payment-based deductions under Chapter VIII Part B — investments, insurance, loan interest, donations, and rent. These are the deductions most relevant to individual taxpayers under the old (non-default) tax regime.
🔄 Replaces: Sections 80C, 80CCD, 80CCH, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGB, 80GGC of the Income Tax Act 1961
⚠️ Note: Most Part B deductions are available only under the old tax regime. NPS employer contribution (Sec 124) and Agniveer (Sec 125) are available under both regimes.
Section 123 — 80C Investments (₹1,50,000 Cap)
Replaces Section 80C of the 1961 Act. The most widely claimed deduction — aggregate of all Schedule XV investments up to ₹1,50,000. Available to individuals and HUFs.
What qualifies under Schedule XV (80C investments)?
- Public Provident Fund (PPF)
- National Savings Certificate (NSC)
- Senior Citizens Savings Scheme
- Sukanya Samridhi Account
- 5-year Post Office time deposit
- NABARD Rural Bonds
- Life insurance premium (self, spouse, children)
- Deferred annuity premiums
- Unit Linked Insurance Plans (ULIP)
- Annuity plans of LIC / other insurers
- Pension plans of mutual funds
- Home loan principal repayment (not interest)
- Stamp duty and registration for house
- ELSS (Equity Linked Savings Scheme)
- Children's tuition fees (2 children)
- EPF / VPF own contribution
- Infrastructure bonds (notified)
- Insurance premium: capped at 10% of sum assured for policies issued on/after 1 Apr 2012
- Children's tuition fees: only full-time education in Indian school/college; max 2 children
- Home loan principal: only for purchase or construction (not renovation)
- ELSS: 3-year lock-in; any amount up to ₹1.5L aggregate cap
Section 124 — NPS: National Pension System
Replaces Section 80CCD of the 1961 Act. Three layers of NPS deduction — employer contribution, employee own contribution, and additional self-contribution. Applies to employed individuals.
| Sub-sec | Type of Contribution | Limit | Regime | Old Sec |
|---|---|---|---|---|
| 124(1)(a) | Employer contribution — Central/State Govt employer | 14% of salary | Both old & new regime | 80CCD(1B) |
| 124(1)(b) | Employer contribution — other (private sector) employer | 10% of salary (14% under new regime per Sec 124(2)) | Both old & new regime | 80CCD(1) |
| 124(3) | Employee own / self-contribution to NPS (including for minor's account — 124(4)) | ₹50,000 additional (over and above 80C cap of ₹1.5L) | Both old & new regime | 80CCD(1B) |
Taxation of NPS Receipts [Section 124(6)–(12)]
When NPS amounts are received, they are taxable as income of the year of receipt in these situations:
- Closure / opting out: Entire balance (deduction + accrued income) taxable in year of receipt
- Pension from annuity plan: Taxable in year of receipt
- Unified Pension Scheme (UPS) — superannuation/VRS/FR 56(j): Taxable in year of receipt
Exceptions: (a) Amount received by nominee on death of assessee — NOT taxable. (b) Amount used to purchase an annuity plan in the same year — NOT deemed received. (c) UPS transfer from individual corpus to pool corpus — NOT deemed received.
Section 125 — Agniveer Corpus Fund
Replaces Section 80CCH of the 1961 Act. Available to individuals who enrolled in the Agnipath Scheme (Indian Armed Forces) and subscribed to the Agniveer Corpus Fund on or after 1st November 2022.
Whole of the amount deposited by the Agniveer in the Corpus Fund during the tax year — no upper cap.
Where Central Government makes a matching contribution to the Agniveer's account — the Agniveer also gets deduction for the Government's share. Available under both old and new regimes.
Section 126 — Health Insurance Premium (80D)
Replaces Section 80D of the 1961 Act. Available to individuals and HUFs. The deduction varies based on who is covered and whether they are a senior citizen.
Deduction Limits — Individual [Sections 126(2)–(4) & (8)]
| Payment Category | Self/Family (non-senior) |
Self/Family (senior citizen) |
Notes |
|---|---|---|---|
| Health insurance premium — self & family | ₹25,000 | ₹50,000 | Includes preventive health check-up up to ₹5,000 |
| Health insurance premium — parents | ₹25,000 | ₹50,000 | If parents are senior citizens — ₹50,000 |
| Medical expenditure (no insurance) — self & family senior citizen | N/A | ₹50,000 | Only if no health insurance taken for that person |
| Combined cap (self + parents) | ₹50,000 | ₹1,00,000 | Maximum total deduction for an individual |
Section 127 — Dependant with Disability (80DD)
Replaces Section 80DD of the 1961 Act. For resident individuals and HUFs who incur expenses for a dependant (not themselves) with disability. The deduction is a fixed amount — not based on actual expenditure.
₹75,000
Fixed deduction irrespective of actual expenditure
₹1,25,000
Fixed deduction irrespective of actual expenditure
Key Conditions
- Dependant includes: For individual — spouse, children, parents, brothers, sisters (wholly or mainly dependent on assessee). For HUF — any HUF member.
- Certificate required: Medical certificate from prescribed medical authority, filed with return of income every year. If reassessment is required — fresh certificate needed before expiry.
- Not available if dependant claims Section 154 (self-disability): Cannot claim both 127 (for dependant) and 154 (self) for the same person.
- Insurance scheme reversal: If the dependant dies before the assessee, amounts deposited under an LIC/insurer maintenance scheme are taxable as income in the year of return of the deposit [Section 127(4)].
Section 128 — Medical Treatment of Specified Diseases (80DDB)
Replaces Section 80DDB of the 1961 Act. For resident individuals and HUFs paying for medical treatment of specified serious diseases.
| Patient | Deduction | Condition |
|---|---|---|
| Individual / dependant (non-senior citizen) | Lower of actual paid or ₹40,000 | Prescription from specialist required |
| Senior citizen patient (60+) | Lower of actual paid or ₹1,00,000 | Prescription from specialist required |
Prescription from: Neurologist, oncologist, urologist, haematologist, immunologist, or other specialist as prescribed.
Insurance / employer reimbursement: Any amount received from insurance or reimbursed by employer is deducted from the deduction — only the net uninsured amount qualifies.
Section 129 — Interest on Education Loan (80E)
Replaces Section 80E of the 1961 Act. Deduction for individual paying interest on loan taken for higher education.
For higher education of the assessee himself or his relative (relative = spouse, children, legal ward)
Whole interest amount — no upper cap. Only interest qualifies (not principal repayment).
8 years — initial year of repayment + 7 subsequent years, or until interest is fully paid, whichever is earlier
Sections 130–132 — Home Loan & Electric Vehicle Loan Interest
Three separate deductions for interest on specific categories of loans — all for individuals only, all requiring first-time ownership, and all in addition to Section 24(b) house property interest deduction (old regime).
| Section | Purpose | Loan Sanction Period | Property / Asset Cap | Deduction Cap | Old Sec |
|---|---|---|---|---|---|
| 130 | Residential house — affordable housing (first home) | 1 Apr 2016 – 31 Mar 2017 | Loan ≤ ₹35L; Property value ≤ ₹50L; No house on date of sanction | ₹50,000/yr | 80EE |
| 131 | Residential house — affordable housing (first home, larger window) | 1 Apr 2019 – 31 Mar 2022 | Stamp duty value ≤ ₹45L; No house on date of sanction; Not eligible for Sec 130 | ₹1,50,000/yr | 80EEA |
| 132 | Electric vehicle (EV) — first purchase loan | 1 Apr 2019 – 31 Mar 2023 | Vehicle powered exclusively by electric motor with traction battery and regenerative braking | ₹1,50,000/yr | 80EEB |
Section 133 — Donations to Funds & Charitable Institutions (80G)
Replaces Section 80G of the 1961 Act. Available to all assessees. Two tiers — 100% deduction for national funds, and 50% deduction for other approved institutions (subject to a cap).
Tier 1 — 100% Deduction (No Cap) [Section 133(1)(a)]
Donations to these funds qualify for 100% deduction with no qualifying limit:
Tier 2 — 50% Deduction (with Qualifying Limit) [Section 133(1)(b)]
Donations to these qualify for 50% deduction — but the qualifying amount is capped at 10% of Adjusted GTI:
- PM's Drought Relief Fund
- Any charitable institution / registered NGO approved under Section 354 / Schedule VII Sl. 1
- Government / local authority for charitable purposes (other than family planning)
- Housing development authorities
- Minority welfare corporations (notified)
- Place of worship of historic/renown importance (notified)
Adjusted GTI = GTI minus exempt income minus other Chapter VIII deductions already claimed.
Critical Rules [Sections 133(4)–(6)]
- Only monetary donations qualify — donations in kind (goods, property) do not qualify for Section 133
- Cash limit: Donations over ₹2,000 must be made by non-cash mode (NEFT/UPI/cheque etc.)
- Pre-validation: For Tier 2 institutions, deduction is allowed only based on information furnished by the institution to the prescribed authority (Form 10BE / Donation certificate with unique ARN)
- No double deduction: Once allowed under Section 133, same donation cannot be claimed under any other provision
Section 134 — Rent Paid (80GG)
Replaces Section 80GG of the 1961 Act. For assessees who pay rent for their own residence but do not receive House Rent Allowance (HRA) from their employer.
(b) 25% of Total Income (before this deduction)
(c) Rent paid minus 10% of Total Income
When is Section 134 NOT available? [Section 134(4)]
- Assessee (or spouse/minor child/HUF) owns a house at the place where they ordinarily reside / work / carry on business
- Assessee owns a house elsewhere which is let out or treated as self-occupied under Section 21(6) or (7)(a)
- Assessee has income from salary (Schedule III, Sl. 11) — i.e., salaried employees who receive HRA cannot claim this separately
Sections 135–137 — Research Donations & Political Contributions
Donations to research associations, approved universities, and colleges for scientific research, social science research, or statistical research. 100% deduction of the amount donated.
- Not available to assessees with business/profession income
- No cash donations over ₹2,000
- Deduction allowed based on information furnished by the payee to the income-tax authority (system-based verification)
- Withdrawal of approval to the institution after payment does NOT deny the deduction to the donor [Section 135(3)]
Indian companies can deduct the full amount contributed to a registered political party (Section 29A of Representation of People Act) or an electoral trust. Only non-cash contributions qualify — no cash deduction.
Any assessee (except local authority and govt-funded artificial juridical persons) can deduct contributions to registered political parties / electoral trusts. Again, only non-cash contributions qualify.