Section 80C in FY 2025-26: Why It Disappears in the New Regime and What That Means for Your Tax Bill

Section 80C of the Income-tax Act, 1961 lets an individual or Hindu Undivided Family deduct up to Rs 1,50,000 from gross total income for specified savings, premia and tuition fees in the financial year. The ceiling has not moved since the Finance (No. 2) Act, 2014 raised it from Rs 1,00,000 from 1 April 2015, even as headline cost-of-living indices have roughly doubled. That stagnant cap is now compounded by a structural shift: from Assessment Year 2024-25 the new tax regime under Section 115BAC is the default, and Section 80C deductions are not available within it. For salaried filers expecting Form 16 in May or June 2026, the regime locked in for FY 2025-26 (1 April 2025 to 31 March 2026) decides whether the 80C basket is worth anything at all.

The Finance Act, 2025 (notified 29 March 2025 in the Gazette of India) rewired the new regime slabs and pushed the Section 87A rebate to Rs 60,000 against tax payable up to Rs 12,00,000 of total income, but it left Section 80C untouched and confined to the old regime. The arithmetic that follows shows why the regime decision is now a bigger lever than the 80C basket itself for most middle-income filers.

What the Section Says

Section 80C, read with sub-sections (2) to (8), enumerates 23 categories of qualifying outflows. The aggregate deduction, when combined with Section 80CCC (pension funds) and Section 80CCD(1) (employee NPS contribution), cannot exceed Rs 1,50,000 by virtue of the cap in Section 80CCE. The Income Tax Department's reading on incometax.gov.in is unambiguous: a taxpayer who exercises the new regime under Section 115BAC(6) for FY 2025-26 forgoes the entire 80C / 80CCC / 80CCD(1) bundle.

The basket inside the Rs 1.5 lakh cap is wider than most filers use. Public Provident Fund contributions earn 7.1% per annum for Q1 FY 2025-26 as notified by the Ministry of Finance on 28 March 2025; Sukanya Samriddhi Yojana for a girl child below 10 earns 8.2% in the same quarter; Employees' Provident Fund earns 8.25% for FY 2024-25 as declared by the EPFO Central Board of Trustees in February 2025. Equity-Linked Saving Schemes carry a 36-month lock-in and qualify for 80C even though their gains are governed by the Section 112A long-term capital gains regime above Rs 1,25,000. Five-year tax-saving fixed deposits with scheduled banks, principal repayment of a self-occupied home loan under Section 80C(2)(xviii), tuition fees paid for up to two children to a recognised Indian institution, and life insurance premia (subject to the 10%-of-sum-assured rule in Section 80C(3A)) round out the most-claimed heads.

A separate Rs 50,000 deduction for self-contributed NPS Tier-I sits in Section 80CCD(1B), over and above the Rs 1,50,000 cap, but Section 80CCD(1B) is NOT allowed in the new regime — it is available only in the old regime. The only NPS-linked deduction that survives Section 115BAC is the employer's contribution under Section 80CCD(2), which the Finance (No. 2) Act, 2024 raised to 14% of salary for new-regime filers from 1 April 2025.

Worked Example

Consider Riya, a product manager in Bengaluru with gross salary of Rs 17,40,000 for FY 2025-26 after Section 17(1) inclusions. She pays Rs 1,50,000 across PPF (Rs 90,000), term insurance premium (Rs 24,000) and ELSS SIP (Rs 36,000); she has no Section 24(b) home-loan interest and no Section 80D claim because her employer's group health policy covers her parents.

Her old-regime computation begins from gross salary Rs 17,40,000, less standard deduction Rs 50,000 under Section 16(ia) (the old-regime cap, unchanged since AY 2020-21), less 80C of Rs 1,50,000, less Section 80CCD(1B) of Rs 50,000 if she tops up NPS Tier-I voluntarily. Assuming she does the NPS top-up, taxable income is Rs 14,90,000. Tax on the unamended slab schedule (0% to Rs 2,50,000; 5% to Rs 5,00,000; 20% to Rs 10,00,000; 30% above) is Rs 12,500 + Rs 1,00,000 + Rs 1,47,000 = Rs 2,59,500. Health-and-education cess at 4% takes the total to Rs 2,69,880.

Her new-regime computation, by contrast, ignores 80C entirely. Gross salary Rs 17,40,000 less Section 16(ia) standard deduction Rs 75,000 leaves taxable income of Rs 16,65,000. Tax under the Section 115BAC slabs notified by the Finance Act, 2025 (0% to Rs 4,00,000; 5% to Rs 8,00,000; 10% to Rs 12,00,000; 15% to Rs 16,00,000; 20% to Rs 20,00,000; 25% to Rs 24,00,000; 30% above) is Rs 20,000 + Rs 40,000 + Rs 60,000 + Rs 60,000 + Rs 13,000 = Rs 1,93,000. Cess at 4% adds Rs 7,720 for a total of Rs 2,00,720.

Riya saves Rs 69,160 by choosing the new regime, despite surrendering Rs 2,00,000 of 80C and 80CCD(1B) deductions. For salaried filers whose deductions stop at standard deduction plus 80C plus 80CCD(1B), the new regime wins across the board in FY 2025-26 because the Section 87A rebate now extends to Rs 12,00,000 of total income with a maximum credit of Rs 60,000. The old regime starts to compete only once total deductions, including Section 24(b) home-loan interest of up to Rs 2,00,000, Section 80D health premia and HRA exemption under Section 10(13A), cross roughly Rs 8,00,000 a year. Run the numbers for your own profile in Oquilia's old-vs-new regime comparator before signing the April declaration with HR.

Common Mistakes

The first error CPC's automated processing catches is double-counting employer EPF as 80C. Only the employee's 12% share of basic plus dearness allowance qualifies under Section 80C(2)(vi); the employer's 12% share is excluded by Rule 8 of Part A of the Fourth Schedule and, above 12% of salary, is itself taxed as perquisite. Misreporting both halves is one of the most common rejections at the e-verification stage in AY 2024-25 ITR-1 filings.

The second pitfall is term insurance with a sum assured below ten times the annual premium. Section 80C(3A) caps the deductible premium at 10% of the sum assured for policies issued on or after 1 April 2012, easing to 15% only for disability-rider policies under Section 10(10D)(2). A policyholder who pays Rs 30,000 on a Rs 2,00,000 sum-assured plan can claim only Rs 20,000 under 80C and risks a Section 10(10D) clawback on the maturity amount.

The third mistake is treating ULIP premia paid after 1 February 2021 as 80C-deductible without checking the Rs 2,50,000 aggregate cap introduced by the Finance Act, 2021 in Section 10(10D), Explanation 3. ULIP premia above that aggregate are not exempt at maturity and the underlying NAV gains face Section 112A as if they were ELSS units, per CBDT Circular No. 2/2022 dated 19 January 2022.

The fourth error is the new-regime trap itself. A salaried employee who wants the old regime in FY 2025-26 must affirmatively file Form 10-IEA on or before the Section 139(1) due date (31 July 2026 for non-audit cases) along with the ITR. Failure to file Form 10-IEA collapses the return into the new regime by default, and any 80C, 80CCD(1B), 80D or HRA claim shown in the ITR is disallowed in CPC processing. The CBDT clarified this in Notification No. 43/2023 dated 21 June 2023 and reaffirmed it in the AY 2025-26 ITR-2 utility release notes published on 11 July 2025.

The fifth mistake is forgetting that 80C is a deduction from gross total income, not a tax credit. A claimant in the 5% slab who invests Rs 1,50,000 saves at most Rs 7,500 in tax (5% of Rs 1,50,000) plus 4% cess, not Rs 1,50,000. Weigh that realistic saving against the opportunity cost of the lock-in, particularly for PPF (15 years) and SSY (until the daughter is 21), before topping up. Use Oquilia's income tax calculator to model the marginal-rate saving for your slab.

FAQ

Is Section 80C available in the new regime for FY 2025-26?

No. Section 115BAC(2) read with the proviso bars Section 80C, 80CCC, 80CCD(1), 80CCD(1B), 80D, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80U and most of Chapter VI-A. Only Section 80CCD(2) (employer NPS up to 14% of salary), Section 80CCH (Agniveer Corpus Fund) and Section 80JJAA (employer additional-employee deduction) survive.

Has the Rs 1,50,000 ceiling been increased in the Finance Act, 2025?

No. The Finance Act, 2025, notified on 29 March 2025, did not amend Section 80CCE. The Rs 1,50,000 cap has been static since 1 April 2015, when the Finance (No. 2) Act, 2014 raised it from Rs 1,00,000.

Can I keep my PPF account in the new regime if I do not need 80C?

Yes. PPF interest at 7.1% (Q1 FY 2025-26) and the maturity proceeds remain exempt under Section 10(11) in both regimes; only the 80C deduction on the contribution is denied in the new regime. A PPF account remains worthwhile if you need a sovereign-backed long-duration debt allocation, even with no upfront tax saving.

Does the Rs 1.5 lakh cap include employer EPF?

No. Only the employee's 12% share of basic plus dearness allowance counts towards 80C. The employer's 12% share is excluded by Rule 8 of Part A of the Fourth Schedule.

Can I claim home-loan principal repayment under 80C and the same loan's interest under Section 24(b) in FY 2025-26?

Yes, in the old regime. Principal goes to Section 80C(2)(xviii) up to Rs 1.5 lakh; interest goes to Section 24(b) up to Rs 2,00,000 for a self-occupied house. In the new regime, only Section 24(b) interest on a let-out property is allowed; self-occupied interest and 80C principal are both denied.

Are five-year FDs and ELSS interchangeable for 80C purposes?

The 80C deduction is identical, but the tax treatment of returns differs sharply. Five-year tax-saving FD interest is fully taxable at slab rate every year and TDS applies under Section 194A above Rs 1,00,000 for senior citizens or Rs 50,000 otherwise, after the Finance Act, 2025 threshold rationalisation. ELSS gains qualify for the Section 112A long-term capital-gains rate of 12.5% above the Rs 1,25,000 annual exemption.

What happens if I claim 80C in the new regime by mistake?

CPC's intimation under Section 143(1)(a)(ii) will disallow the 80C entry and recompute tax. If the disallowance triggers short payment, interest under Sections 234B and 234C accrues from 1 April of the assessment year. You can rectify under Section 154 or revise the regime via Form 10-IEA only if the original return was filed within the Section 139(1) due date.

For more on response timelines and CPC notices, see our pieces on the defective return notice under Section 139(9) and the updated return window under Section 139(8A). The official statute is hosted at incometaxindia.gov.in and the Finance Act, 2025 gazette is on indiacode.nic.in.