New Income Tax Bill 2025: Section 80C Deductions Put Together In Clause 123

Finance Minister Nirmala Sitharaman tabled the new Income Tax Bill in the Lok Sabha on 13 February 2025. The bill seeks to make India's tax law up-to-date and simpler to understand for the public. While many changes have been introduced in the New Bill, one notable change is the changing of Section 80C into Clause 123 of the new bill.

Simplified Tax-Saving Deductions

Previously, Section 80C had a provision for the deduction of investments in the form of investments in securities like Public Provident Fund (PPF), National Savings Certificates (NSC), and payment of life insurance premiums, of up to Rs 1.5 lakh annually. The new bill relocates these provisions to Clause 123.

The new bill states that a Hindu Undivided Family (HUF) or an individual can be allowed a deduction of the amount paid or deposited in the previous year of income, (sum mentioned in Schedule XV) but not exceeding Rs 1,50,000. The reorganisation has been done to simplify comprehension and observance of the norms by taxpayers.

Implementation of Schedule XV

Clause 123 mentions Schedule XV, which gives a detailed tax-saving structure for the public, further simplifying the deductions. Although the exact details of Schedule XV are not yet fully disclosed, it is likely to offer a more detailed list of eligible investments along with the requirements for deductions.

Structure and Streamlining of the New Bill

The New Income Tax Bill consists of 536 clauses in 23 chapters and 16 schedules totaling 622 pages. This is relatively shorter than the existing Income Tax Act of 1961, which has 298 sections and 14 schedules distributed over 880 pages. This streamlining of the law is likely to help in simplifying the tax code as well as making it more user-friendly.

Key Features of the New Bill

Tax Year Concept: The bill proposes the concept of a "tax year" that supersedes the traditional "assessment year" and "previous year" terminologies. This is intended to simplify and decomplicate tax filing by taxpayers.

Delegation of Powers: Increased powers are given to the Central Board of Direct Taxes (CBDT) to implement tax schemes and compliance programs like the Goods and Services Tax (GST) regime.

Enhanced Definition of Deductions: Salary-linked deductions, i.e., regular deductions, gratuity, and leave encashment, have been brought under a single section so that the taxpayer is presented with a clear picture of the deductions they are entitled to.

Impact on Taxpayers

The grouping of tax-saving allowances under Clause 123 is likely to simplify the tax-filing process as taxpayers will be able to readily identify and claim rightful deductions. The grouping of these provisions will reduce the cost of compliance and improve transparency on the government's side.

Tax expert and CEO of EZTax.in, Suneel Dasari states, "Although section 123 of the new IT Bill 2025 pertains to all 80C deductions under the IT Act 1961, Schedule XV of the new IT Bill encompasses all investment options that can be used to reduce taxes. Schedule XV of the new bill has all the investment choices that we have over the old 1961 act such as LIC, term insurance, Sukanya Samriddhi scheme, subscription to savings certificate, ULIP, ELSS, PPF, contribution or pension fund,  tuition fees, Home loan principal, stamp duty, fixed deposit for 5 years etc. The above investments are applicable only under the old tax regime. If the taxpayers want to follow the new tax regime, they cannot claim all these deductions u/s 123. The taxpayers with investments u/s 123 along with other investments like NPS, home loan, etc., can benefit under the old tax regime".

"The taxpayers with a salary of 16 lakhs and investments (assumed) of Rs 6 lakhs (Section 123, Home Loan, HRA, NPS, etc.,) are required to pay a tax of Rs 106600 under Old tax regime when compared to a tax of Rs 113100 under New Tax regime", he adds. 

Dasari concludes by saying, "Clause 123 of the new act is appealing to individuals only in specific income range, as the new tax regime (NTR) is more appealing without any deductions, as indicated in the most recent Budget 2025. The investment strategies that are being followed are anticipated to evolve in accordance with the necessity of sticking to the New Tax Regime (NTR) or the Old Tax Regime (OTR).

The introduction of the New Income Tax Bill 2025 is a major step towards a simplified Indian taxation regime. The clustering of tax-saving deductions in Clause 123 and other institutional reforms is in line with its goal to establish a more streamlined and taxpayer-centric system. Although the bill is progressing through parliament, more shall be understood later on how it can impact the taxpayers.