Taxation · Deductions from Gross Total Income

Deductions for Savings and Investments under Old and New Tax Regime

Updated 4 October 2026 · Fact-checked

These are deductions from gross total income for money you save or invest, such as life insurance premium, PPF, ELSS, tuition fees and NPS. Under the old regime, most share a combined cap of ₹1,50,000, with NPS extras on top. Under the default new regime, only employer NPS contribution is allowed. Identify the regime, apply each limit, cap the total.

Understand Deductions for Savings and Investments

The law gives you a tax deduction when you put money into approved savings. The aim is to push people to save for insurance, retirement and their children's education. The deduction comes off gross total income, so it lowers total income before the slab rates apply.

The first question in every problem is the regime. Under the old (optional) regime, you can claim the savings deductions. Under the default new regime, you cannot claim them, except the employer's contribution to NPS and a few other items outside this topic. If the question does not say the assessee chose the old regime, check whether it gives enough hints. Never claim these deductions blindly.

Under the old regime, the savings items share one aggregate ceiling of ₹1,50,000. The items in this group are: life insurance premium, provident fund (EPF and PPF), tuition fees for up to two children, ELSS mutual funds, National Savings Certificates, 5-year tax-saver deposits with banks or post offices, Sukanya Samriddhi, and your own NPS contribution (only up to the 10% of salary limit for salaried people, or 20% of gross total income for others). Pay more than the ceiling and the excess earns nothing.

Home loan principal repayment and stamp duty and registration charges on a house are housing-loan items. They are covered in the topic on deductions for loans, rent and interest, so do not treat them as part of this savings group unless that topic tells you to.

NPS has three layers. Your own contribution, up to the 10% or 20% limit, sits inside the ₹1,50,000 ceiling. The 10% or 20% limit applies first. An extra ₹50,000 is then allowed only for your own NPS contribution that is in excess of that 10% or 20% limit. The excess is measured over the 10% or 20% limit, not over what the ceiling finally allows. The extra deduction sits over and above the ₹1,50,000 ceiling and is available only in the old regime. The employer's contribution is not covered by this extra amount.

The employer's contribution is separate and is not part of the ₹1,50,000 ceiling. Its limit depends on the regime. Under the new regime it is capped at 14% of salary for all employees. Under the old regime it is capped at 14% of salary for Central or State Government employees and 10% of salary for all other employees. The employer's contribution is also taxable as part of salary, so you add it to salary first and then claim the deduction. Total deductions are still limited by gross total income.

The limits and conditions in this page are for tax year 2026-27 under the Income-tax Act, 2025. Always read the question for the dates, the relationship of the person paid for, the sum assured and the type of employer. These details decide the answer.

Key rules to remember

Aggregate ceiling (old regime): Savings group deduction = lower of (total eligible amounts, ₹1,50,000); The group covers life insurance premium, PPF, EPF, tuition fees, ELSS, NSC, tax-saver FD, Sukanya Samriddhi and own NPS contribution (within its 10% or 20% limit). Home loan principal and stamp duty belong to the housing-loan topic.
Life insurance premium: policy issued on or before 31 March 2012: Premium eligible = lower of (premium paid, 20% × actual capital sum assured); Capital sum assured excludes bonus and similar benefits. Premium for self, spouse or any child qualifies. HUF: any member. Parents' policies do not qualify.
Life insurance premium: policy issued on or after 1 April 2012: Premium eligible = lower of (premium paid, 10% × actual capital sum assured); For policies on a person with disability or specified disease, issued on or after 1 April 2013, the limit is 15%.
Employee's own NPS contribution: Salaried: up to 10% of salary. Others: up to 20% of gross total income. Still within ₹1,50,000.; Salary for this purpose means basic pay plus dearness allowance if the terms of employment provide for it to count for retirement benefits. Do not use gross salary. This limit applies first.
Additional own NPS contribution: Extra deduction = lower of (own NPS contribution − amount within the 10% or 20% limit, ₹50,000); Only for the assessee's own NPS contribution, not the employer's. The 10% or 20% limit is applied first and the excess over it is tested against ₹50,000. It is over and above the ₹1,50,000 ceiling. Old regime only.
Employer's NPS contribution: Deduction = lower of (employer contribution, limit % × salary). New regime: 14% for all employees. Old regime: 14% for Central or State Government employees, 10% for others.; Salary means basic plus DA (if terms provide). This is outside the ₹1,50,000 ceiling, but total deductions are still capped by the overall limit below.
Tuition fees: Eligible = tuition fees only, for at most two children, full-time education in India; Excludes development fees, donations and capitation fees. The fees must be paid to a university, college, school or other educational institution.
Overall limit on deductions: Total of these deductions ≤ gross total income − specified special-rate incomes; The total deduction cannot exceed gross total income after leaving out the specified special-rate incomes (such as certain capital gains). If the question has no such incomes, the cap is simply gross total income.

How to solve Deductions for Savings and Investments questions

Use the same order for any question on savings deductions. It protects your step marks and keeps you from claiming items that are not allowed.

1Read the regime. If the question says the assessee opts for the default new regime, claim only the employer NPS deduction and stop. If the old regime applies, continue.
2List every payment in the question and mark whether it belongs to the ₹1,50,000 group, the extra NPS item, or the employer NPS item.
3Test each payment against its conditions: the person for whom it was paid (self, spouse, children, not parents), the policy issue date, the sum assured, and whether it is tuition fees or another type of fee.
4Apply item-level limits first: 20% or 10% of sum assured for life insurance, 10% of salary for employee NPS, two children for tuition fees.
5Add the eligible amounts in the group and apply the ₹1,50,000 ceiling. Then add the extra NPS deduction (up to ₹50,000) and the employer NPS deduction if available.
6Check that the total deductions do not exceed gross total income, subtract them, and show total income. Add one line of working for each item, since examiners give marks for each.

Quickest way: Four-bucket method for MCQs and written answers

When to use it: Use when you have limited time and the question lists many payments and a mixed regime.

MCQ: look for the regime word first. 'New regime' usually leaves only employer NPS, so you can often eliminate three options at once.
Sort every payment into four buckets: group (cap ₹1,50,000), extra own NPS (cap ₹50,000), employer NPS (cap 14% of salary in the new regime; in the old regime 14% for Government employees and 10% for others), and rejected (parents' policy, donations, development fees, third child's fees).
Cap the life insurance premium immediately: compare the premium with 10% (or 20%, or 15%) of the sum assured. Take the lower.
Add the group items, cut to ₹1,50,000, then add the other buckets. In MCQs, a total above ₹1,50,000 for the group is always a wrong option.
Written answer: write a small table-like list (item, amount paid, limit, eligible). Then give the total and the final figure. This format earns step marks even if one limit is wrong.

Common mistakes in Deductions for Savings and Investments

Claiming savings deductions under the default new regime
Students remember the deduction and forget it needs the old regime.
Fix: Check the regime before anything else. Under the new regime, only employer NPS is claimed in this topic.
Allowing the full life insurance premium
Students forget the sum-assured limit and treat the premium as always deductible.
Fix: Compute 10% (or 20% or 15%) of the actual capital sum assured and take the lower of that and the premium.
Putting employer NPS inside the ₹1,50,000 ceiling
All NPS looks the same, so students group it with own contributions.
Fix: Keep employer NPS separate. It has its own limit linked to salary and sits outside the ceiling. Also include the amount in salary income first.
Using gross salary to compute the NPS percentage
The word 'salary' is used loosely in questions.
Fix: Use basic pay plus DA (where terms provide) only. Leave out HRA, bonus, commission and other allowances.
Including development fees, donations or fees for a third child as tuition fees
Students add every amount paid to the school.
Fix: Include only the tuition fee, for at most two children, in a full-time course in India.
Claiming a policy premium paid for parents or in-laws
Students mix this deduction with the health insurance deduction, where parents are covered.
Fix: For life insurance, only the assessee, spouse and children qualify (HUF: any member). Parents' policies do not.

Worked examples

Example 1

Mr. Rao is a salaried individual in a private company (not a Government employee) who opts for the old regime. For tax year 2026-27 his gross total income is ₹12,00,000 after adding his employer's NPS contribution to salary. He has no special-rate incomes. His basic pay is ₹6,00,000 and DA is ₹1,00,000, and the DA forms part of pay for retirement benefits. His payments: own NPS contribution ₹1,20,000; PPF deposit ₹60,000; life insurance premium ₹80,000 on a policy issued in 2015 with actual capital sum assured of ₹5,00,000; tuition fees for two children ₹55,000 (plus a ₹10,000 donation to the school). Employer contributed ₹80,000 to NPS. Compute his total income.

Show the solution

The gross total income of ₹12,00,000 already includes the employer's NPS contribution of ₹80,000, so no further addition is needed.
Salary for NPS purposes = ₹6,00,000 + ₹1,00,000 = ₹7,00,000.
Own NPS: the 10% limit applies first. 10% × ₹7,00,000 = ₹70,000. He paid ₹1,20,000, so ₹70,000 goes into the group.
The own NPS contribution in excess of the 10% limit is ₹1,20,000 − ₹70,000 = ₹50,000. Extra deduction = lower of (₹50,000, ₹50,000) = ₹50,000. This sits outside the ₹1,50,000 ceiling, and it is allowed even though the group is full.
PPF ₹60,000 is within the annual PPF deposit limit of ₹1,50,000, so it is eligible in full: ₹60,000.
Life insurance: policy issued after 31 March 2012, so limit is 10% × ₹5,00,000 = ₹50,000. Premium paid is ₹80,000. Eligible is ₹50,000.
Tuition fees: only the tuition fee counts. The ₹10,000 donation is excluded. Eligible ₹55,000.
Group total = ₹70,000 + ₹60,000 + ₹50,000 + ₹55,000 = ₹2,35,000. It exceeds the ceiling, so the group deduction is ₹1,50,000.
Employer NPS: he is a non-Government employee under the old regime, so the limit is 10% × ₹7,00,000 = ₹70,000. Paid ₹80,000, so the deduction is ₹70,000. This is outside the ceiling.
Total deductions = ₹1,50,000 + ₹50,000 + ₹70,000 = ₹2,70,000, which is below gross total income (there are no special-rate incomes to leave out).
Total income = ₹12,00,000 − ₹2,70,000 = ₹9,30,000.

Answer: Deductions are ₹2,70,000 and total income is ₹9,30,000.

Example 2

Ms. Meera is an employee of a private company (not a Government employee) whose basic pay plus DA (DA counts for retirement benefits) is ₹10,00,000. Her employer contributed ₹1,50,000 to her NPS account. She made no own NPS contribution. She also paid ₹1,50,000 to PPF and ₹40,000 as life insurance premium on a policy where the premium is within the sum-assured limit. Find the maximum deduction for these items (a) under the default new regime and (b) under the old regime, assuming her gross total income is large enough.

Show the solution

(a) New regime: PPF and life insurance deductions are not allowed. Only the employer NPS deduction is available.
Limit for the new regime = 14% × ₹10,00,000 = ₹1,40,000. Employer paid ₹1,50,000, so the deduction is ₹1,40,000.
(b) Old regime: group items = PPF ₹1,50,000 + life insurance ₹40,000 = ₹1,90,000. Ceiling gives ₹1,50,000.
Employer NPS limit under the old regime for a non-Government employee = 10% × ₹10,00,000 = ₹1,00,000. Paid ₹1,50,000, so the deduction is ₹1,00,000. It sits outside the ceiling.
The extra ₹50,000 deduction does not apply, because it is only for her own NPS contribution and she made none.
Total under the old regime = ₹1,50,000 + ₹1,00,000 = ₹2,50,000, which is within her gross total income as assumed.

Answer: Under the new regime the deduction is ₹1,40,000. Under the old regime it is ₹2,50,000.

Exam tips

Write the regime in the first line of your answer. Examiners look for it, and it stops you losing marks for an invalid claim.
Show each limit calculation separately: the sum-assured percentage, the salary percentage and the ₹1,50,000 cap. Step marks are given for each.
Watch the dates and relationships in the question. A policy issue date, a parent's policy, or a third child's fee often hides the trick.
For MCQs, test the options against the ceiling. Any option showing more than ₹1,50,000 for the group is wrong, and any option claiming PPF under the new regime is wrong.
Check the ICAI study material and amendments for May 2027 for any change in limits, since the exam follows the Income-tax Act, 2025 as amended by the Finance Act, 2026.

Practice questions from Deductions from Gross Total Income

Deductions for Savings and Investments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Deductions for Savings and Investments: frequently asked questions

Is PPF or ELSS deductible under the new tax regime?

No. Under the default new regime, these savings deductions are not available. You can only claim the employer's NPS contribution from this topic. To claim PPF or ELSS, the assessee must opt for the old regime.

What is the limit for NPS contributions by employer and employee?

Your own contribution is limited to 10% of salary (for salaried people) or 20% of gross total income (others), and sits within the ₹1,50,000 ceiling. An extra ₹50,000 is allowed on top, only for your own NPS contribution in excess of that 10% or 20% limit, and only in the old regime. The employer's contribution is limited to 14% of salary under the new regime. Under the old regime it is 14% for Central or State Government employees and 10% for others.

What is the difference between old and new regime deductions for savings?

The old regime allows the savings group up to ₹1,50,000, the extra ₹50,000 deduction for own NPS contribution and the employer NPS deduction. The new regime allows only the employer NPS deduction, and its limit is 14% of salary for all employees. In the old regime the employer limit is 10% for non-Government employees. Slab rates are lower in the new regime to make up for the missing deductions.

How do I calculate the maximum deduction for specified savings?

Compute each item's eligible amount using its own condition and limit. Add the group items and cut the total to ₹1,50,000. Then add the extra own NPS deduction (old regime only) and the employer NPS deduction, and check that the total does not exceed gross total income less any specified special-rate incomes.