New Income Tax Bill: Section 80C Tax-Saving Deductions Now Under Clause 123

New Income Tax Bill: Section 80C Tax-Saving Deductions Now Under Clause 123

The government has introduced a landmark reform in the taxation system with the New Income Tax Bill, which aims to simplify tax laws and enhance transparency. A significant change in this bill is the relocation of tax-saving deductions under Section 80C to a newly introduced Clause 123. This shift is expected to streamline tax filing, reduce ambiguity, and ensure better compliance among taxpayers.

Understanding Clause 123

Clause 123 is a newly formulated section within the New Income Tax Bill, which consolidates all tax-saving deductions that were previously covered under Section 80C. The restructuring of these deductions is intended to offer greater clarity and ease of access to taxpayers.

Under the new provision, taxpayers can continue to claim deductions for investments in various eligible instruments such as:

Public Provident Fund (PPF)
Employees’ Provident Fund (EPF)
National Savings Certificate (NSC)
Life Insurance Premiums
Equity-Linked Savings Scheme (ELSS)
Sukanya Samriddhi Yojana (SSY)
Five-year fixed deposits with banks and post offices

While the core benefits remain unchanged, Clause 123 introduces additional flexibility by providing a more structured approach to claiming deductions.

Key Changes and Implications

Simplification of Tax Laws: One of the primary objectives of moving tax-saving deductions under Clause 123 is to remove the complexities associated with the previous framework of Section 80C. By restructuring and renaming, the government aims to make tax laws more accessible to the general public.
Increased Deduction Limits: The New Income Tax Bill has proposed an increase in the maximum deductible limit under Clause 123. Taxpayers may now avail deductions of up to Rs 2.5 lakh, compared to the earlier Rs 1.5 lakh under Section 80C. This increase is expected to encourage savings and long-term investments.
New Investment Avenues: In addition to existing options, the government has proposed the inclusion of infrastructure bonds and specific green investment schemes to promote sustainable growth.
Digital Compliance and E-Filing Benefits: The integration of Clause 123 with the government’s digital tax filing system will simplify the claiming process, reducing paperwork and errors in tax computation.
Impact on Middle-Class Taxpayers: The revision is expected to benefit middle-class taxpayers significantly, as the higher deduction limit and simplified procedures will provide more tax relief and incentivize disciplined financial planning.

Government’s Vision Behind the Change

The restructuring aligns with the government’s broader vision of modernizing the tax system, enhancing transparency, and increasing compliance. By consolidating tax-saving instruments under Clause 123, the government aims to create a more taxpayer-friendly approach while boosting domestic savings and investments.

Challenges and Considerations

Despite the advantages, some challenges remain. Taxpayers will need to familiarize themselves with the new nomenclature and procedural changes associated with Clause 123. Additionally, the transition from Section 80C to Clause 123 may require adjustments in financial planning strategies, especially for salaried individuals who have structured their tax-saving investments around the old provisions.