These Sec 80C options can be good investments even without tax breaks in new tax regime
After the personal income tax changes introduced in the Budget 2025, the case for the new tax regime has become even stronger. Even those earlier favouring the old tax regime will find it worthwhile shifting to the new tax regime. However, this shift means forgoing any deductions related to tax-saving instruments. The entire Section 80C basket loses its relevance for taxpayers pursuing these only for tax incentives. Should you then bring the curtain down on your existing Section 80C investments?#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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The usual go-to avenues like the PPF, ELSS, Sukanya Samriddhi Yojana and traditional insurance policies may no longer appeal to many shifting to the new tax regime. Purely on tax savings, there is little joy left in pursuing this path. With the disincentivising of tax savings, two distinct outcomes are possible. On the positive front, it might nudge investors towards finally washing their hands off certain suboptimal investments. For years, tax-driven myopia has led investors to stash money in low-return, illiquid or risky assets. It is never a good idea to base investing decisions on tax savings alone, say experts.
Some instruments may lose relevance
Investors can selectively continue with some investments purely on merit.
For instance, traditional insurance policies have limited utility, beyond the tax savings these offer. They neither offer inflation-beating returns, nor do they provide adequate insurance cover. It is only good if investors reconsider locking up a sizeable chunk of their cash flows in such policies. Amol Joshi, Founder, PlanRupee Investment Services, remarks, “Most of these traditional plans are bought at the lastminute to declare tax-saving investments ahead of the 31 March deadline. Beyond this, they don’t add any value to the investor.”
On the flip side, some Section 80C instruments could get junked by investors undeservingly. Certain avenues within this basket remain worthy options even without the tax deductions. The accompanying lock-in period, guaranteed return and unique features make these compelling choices for your portfolio. Some experts maintain that abandoning these altogether could potentially derail your financial well-being. For instance, the Public Provident Fund offers a degree of stability with its guaranteed, tax-free return. When compounded over its lock-in period of 15 years, its 7.1% return can provide a solid foundation to your long-term finances, particularly if you don’t already have an EPF account. “Since you let the PPF account run for 15 years, a sizeable compounding benefit accrues upon its maturity,” asserts Joshi. To be sure, investors already operating a PPF account must continue investing for the remaining maturity period to keep the account active.
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For senior citizens, the Senior Citizens’ Savings Scheme (SCSS) offers unmatched risk-free fixed income with only a five-year lock-in period. With the deposit limit for individual SCSS account now enhanced to Rs.30 lakh from Rs.15 lakh, senior citizens can double their guaranteed income stream. A retiree couple can effectively park Rs.60 lakh in this account, fetching 8.2% interest payout quarterly for five years. “Retirees can secure regular income at very low risk under SCSS,” maintains Suresh Sadagopan, Founder, Ladder 7 Wealth Planners.
Sukanya Samriddhi Yojana is also an unmatched instrument that parents of the girl child can consider, with its 8.2% guaranteed return. This account can be opened before the girl child turns 10, and matures after 21 years, or after the girl reaches 18 years of age. The interest accrued and proceeds received upon maturity or withdrawal are tax-free. “It takes care of goal-based investing for the girl child’s long-term financial security,” insists Joshi.
The National Pension System (NPS) is another vehicle that stands on its own even without the accompanying tax benefit. This retirement savings avenue fosters long-term investing discipline with its lockin period till retirement. Besides, the NPS remains eligible for certain tax benefits under the new tax regime.
However, experts are divided about the utility of continuing with the equity-linked savings scheme (ELSS) investments. To be sure, ELSS is the most potent avenue within the Section 80C basket, offering superior wealth creation. However, investors have enough alternatives in the form of flexicap funds that provide similar exposure to the broader market. Many even boast a superior track record over ELSS schemes. Sadagopan argues, “ELSS is not a differentiated product that stands on its own merit. There is no compelling reason to continue investing in ELSS.”
Yet, some maintain that its lock-in period addresses a key behavioural gap in most investors. Joshi asserts, “Industry data shows that 50% of investors don’t tend to stay invested in equity funds beyond two years. With its mandatory three-year lock-in period, ELSS forces the investor to sit through market volatility, which often brings a shift in mindset towards long-term investing.”
Dhirendra Kumar, CEO, Value Research, wrote in his column for ET, “What begins as a simple tax-saving exercise often evolves into a lifelong investment habit, particularly through instruments like ELSS that combine tax benefits with exposure to equity markets.” Kumar stresses that the mandatory lock-in periods of taxsaving instruments have forced a patient approach to investing, teaching valuable lessons about market dynamics and benefits of staying invested for the long term.
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This story originally appeared on: India Times - Author:Faqs of Insurances
