Budget 2026: ₹2,50,000 exemption on tax-saving investments under Income Tax Act 2025, suggest experts

Exemption on tax-saving investments under Section 123 of the Income Tax Act, 2025 are capped at ₹1.5 lakh for over 10 years. And that too is allowed only under the old tax regime. In the Income Tax Act, 1961, this benefit is covered under Section 80C.

Ahead of Budget 2026, experts at the American Chambers of Commerce in India (AMCHAM) have suggested increasing the tax-saving investment limit to at least ₹2.5 lakh under Section 123. This, they say, should be done to reduce the burden on taxpayers in view of inflation.

Under the existing tax rule, the deduction in respect of life insurance premiums, deferred annuity, contributions to employees' provident fund, subscription to ELSS schemes etc, are allowed under the old regime but only for up to ₹1.5 lakh.

"Currently, deduction under Section 80C of the Act for payments/investments towards life insurance premia, contributions to provident fund, subscription to certain equity shares or debentures, etc. is capped at ₹1,50,000," AMCHAM experts said in their pre-budget memorandum.

They further said that the current limit of ₹150,000 is low and has not been revisited since FY 2014-15.

According to the experts, increasing the limit under Section 123 read with Schedule XV of Income Tax Act, 2025 will have two-fold benefits:

• The individual taxpayers would be willing to save more

• And in turn, they will benefit from a lower tax outgo.

"It is recommended that the government should increase the exemption limit on tax saving investment to at least ₹2.5 lakh considering the inflation rate, as this will also reduce the burden on taxpayers," AMCHAM said.