Section 123: life insurance, PF, PPF, tuition fees and other deductions

Introduction

Section 123 permits an individual or HUF to deduct eligible payments and deposits listed in Schedule XV, up to an aggregate ₹1.5 lakh. Each item's Schedule conditions and the person's applicable tax regime must be checked before claiming.

Key takeaways

What Section 123 says

"An individual or a Hindu undivided family, shall be allowed a deduction of the whole of the amount paid or deposited in the tax year, being the aggregate of the sums enumerated in Schedule XV, as does not exceed ₹1,50,000, while computing the total income for that year, subject to the conditions specified in that Schedule."

In other words, the section itself just sets the ₹1,50,000 ceiling and who can claim it (individuals and HUFs) - the actual list of qualifying payments lives in Schedule XV, which the section refers to.

What qualifies under Schedule XV

Schedule XV lists the payments and investments that count toward the Section 123 deduction, including:

• Life insurance premium (self, spouse or child for an individual; any member for an HUF)
• Sum paid under a deferred annuity contract, or salary deducted for a deferred annuity for a government employee
• Contribution to a statutory or recognised provident fund, or an approved superannuation fund
• Subscription to a Central Government-notified security/deposit scheme in the name of a girl child (the Sukanya Samriddhi-type scheme)
• Subscription to savings certificates notified under the Government Savings Banks Act, 1873
• Tuition fees (excluding development fees or donations) paid to a University, college, school or other educational institution in India, for full-time education of up to two children
• Payment for purchase or construction of a residential house property (i.e. home loan principal), subject to the conditions in paragraph 3 of the Schedule
• A five-year (or longer) term deposit with a scheduled bank under a Central Government-notified scheme
• Subscription to National Bank for Agriculture and Rural Development (NABARD) bonds
• Deposit under the Senior Citizen Savings Scheme Rules, 2004
• Five-year term deposit under the Post Office Time Deposit Rules, 1981
• Contribution by an individual to a pension fund or notified pension scheme, subject to the income-percentage caps in the Schedule

Conditions and limits

Section 202(2)(a)(xii) excludes the Section 123 deduction when an individual or HUF is taxed under the default Section 202(1) regime. The Section 123 ceiling is relevant when the taxpayer has validly opted out under Section 202(4) and otherwise satisfies Schedule XV.

How this relates to Section 124

Section 124 deals separately with contributions to a Central Government-notified pension scheme (NPS): the employer's contribution under Section 124(1), and an individual's own additional contribution of up to ₹50,000 under Section 124(3) - this ₹50,000 is over and above the Section 123 ceiling, and a taxpayer cannot claim the same amount as a deduction under both sections.

Schedule controls eligibility

The section establishes the aggregate ceiling, while Schedule XV identifies the eligible categories and their conditions. Keep evidence for each qualifying payment rather than assuming all savings products count.

Step-by-step flow for applying Section 123

1. 1

   Is the assessee an individual or a Hindu undivided family?

   • No: Section 123 is not available.
   • Yes: Go to the next step.
2. 2

   Is the deduction available under the applicable tax regime?

   As explained above, Section 202(2)(a)(xii) excludes Section 123 for a person taxed under the default Section 202(1) regime.

   • Taxed under Section 202(1): No Section 123 deduction.
   • Validly opted out: Go to the next step.
3. 3

   List each amount paid or deposited during the tax year

   Match every payment to an item in Schedule XV and check that item's own conditions.

4. 4

   Total the qualifying amounts and apply the ceiling

   The deduction is the aggregate of qualifying sums, but not more than ₹1,50,000 for the tax year.

Practical checklist

Glossary

HUF

Hindu undivided family, an eligible assessee category named in this section.

Schedule XV

The Act's schedule listing eligible payments and deposits with their conditions.

Frequently asked questions