A worked example: ₹1.5 lakh invested, 30% marginal rate
Investing the full ₹1,50,000 Section 80C limit at a 30% marginal tax rate saves ₹45,000 in tax.
The formula: min(investment, ₹1.5L) × marginal rate
Eligible investment = the smaller of the actual investment and the ₹1,50,000 annual cap. Tax saved = eligible investment × marginal tax rate ÷ 100: ₹1,50,000 × 30 ÷ 100 = ₹45,000. Investing beyond ₹1,50,000 in 80C instruments saves nothing further — the cap is combined across PPF, ELSS, life insurance, EPF, and other qualifying instruments together, not per instrument.
Why the marginal rate is the number that matters
The same ₹1,50,000 investment saves a different amount depending entirely on the investor's marginal tax rate — someone in the 30% bracket saves ₹45,000, while someone in a 20% bracket investing the identical amount would save only ₹30,000. The tax saving scales with the rate, not with the investment amount alone.
Why this is old-regime only
Section 80C deductions are only available under the old tax regime — the new regime offers lower slab rates in exchange for giving up most deductions, including 80C, so this calculation only applies to taxpayers who've chosen (or are comparing) the old regime.