New Income Tax Bill 2025: Section 80C Tax Deductions move to Clause 123
The government has tabled a new Income Tax Bill, which brings with it a few structural changes while retaining the current tax rates and capital gains regime. The bill was tabled in the Lok Sabha on February 13 and will face further examination by a select committee before being enacted into law. According to the present plan, the bill is likely to take effect from April 1, 2026.
Major Reforms in the New Income Tax Bill
The bill does not make any changes in income tax rates, slabs, or capital gains tax provisions. The bill seeks to streamline the language and format of the Income Tax Act, facilitating easier compliance by taxpayers. One of the major reforms is the recasting of Section 80C tax deductions under a new Clause 123.
Section 80C Deductions shifted to Clause 123
Deductions under Section 80C of the current Income Tax Act include investments in Equity-Linked Saving Schemes (ELSS), Public Provident Funds (PPF), life insurance, National Pension System (NPS) tax-saving deposits, and other instruments as mentioned. The limit of deduction under this section is Rs.1.5 lakh.
In the new bill, these deductions will now come under Clause 123. According to the bill, a person or a Hindu Undivided Family (HUF) will be allowed a deduction on the basis of the total payment made or deposited in a year of income, as per the conditions laid down in Schedule XV. The limit of deduction is still Rs.1.5 lakh.
The new provision makes it clear that all avenues of tax savings presently dealt with under Section 80C remain intact but with a new numbering system. The specific list of allowable deductions will be mentioned in Schedule XV of the bill.
Structural Changes in the New Income Tax Bill
The new Income Tax Bill is 622 pages long and contains 536 sections, compared to the current Income Tax Act, 1961, which contains 298 sections over 823 pages. Although the number of sections has gone up because of renumbering, unnecessary provisions have been eliminated for simplification.
In the present Income Tax Act, there are sequentially numbered sections such as Section 80 dealing with various deductions like 80C, 80D, and 80E. In the new bill, however, these provisions have been rearranged and renumbered, which has resulted in an increased number of sections but with an aim for clarity.
Next Steps for the Bill
The tabled Income Tax Bill is still being reviewed and will be studied by a select committee, with the report being due for consideration in the coming parliamentary session. The new taxation structure will take effect on April 1, 2026, after finalization and passing.
Taxpayers and accounting professionals are observing the bill’s passage closely because its eventual enforcement may affect tax planning and compliance strategies. The suggested restructurings will improve clarity and preserve the central tax benefits in place under current law.
