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The old tax regime offered several tax deductions that helped bring down
one’s taxable income, and save on taxes. With the Government revising the tax
slabs under the new tax regime, and making it the default tax regime in budget
2023-24, the new regime has become more attractive to certain taxpayers as they
can save more on taxes by opting for it.
A lot of investments were popular due to the available tax deductions, and
section 80C provided deductions of up to ₹1.5 lakh for various investments.
With deductions under section 80C no longer available under the new tax regime,
many popular tax-saving options have become less attractive. Let us take a look
at these.
Public Provident Fund (PPF)
PPF was one of the most popular investments under section 80C as it was
government backed and fell under the EEE category. This meant that the
investment made, interest accrued and payout at maturity were all tax exempt.
However, under the new tax regime, any amount invested in PPF will not be
eligible for tax exemption under section 80C. “This change might have
affected the attractiveness of PPF for
certain investors,” says Atul Sharma, founder of Lex N Tax, a tax consultancy
firm.
Equity-Linked Savings Scheme (ELSS)
ELSS funds were a very popular deduction under section 80C, since they had a
lock-in period of 3 years, and also provided market-linked returns. “Since
the deduction under section 80C is not allowed under the new regime, ELSS
investments have become less popular,” says Sharma.
Tax-saving fixed deposits
FDs have been a popular investment choice because they offer fixed returns. “Tax-saving
fixed deposits are long-term deposits with a lock-in period of five years,
offering tax benefits under section 80C of the Income
Tax Act,” says Sharma. However, since 80C deductions are not
available under the new tax regime, the appeal of tax-saving FDs have reduced,
especially because without tax savings at the time of investments, the real
rate of return on FDs will be even lower.
Endowment plans
Certain types of life insurance policies, such as traditional endowment
plans, have witnessed a decline in popularity due to the new tax regime. Even
though they were not a wise investment option, they were popular because of the
guaranteed returns and the tax benefits they offered under section 80C. Now,
with that gone under the new tax regime, endowment plans have lost their sheen.
National Savings Certificate (NSC)With no tax deduction available under
section 80C if one opts for the new tax regime, NSC becomes taxable as per the
individual’s income tax slab rate – thus making it less popular as a tax-saving
investment.
Source link: https://www.businessinsider.in/personal-finance/news/investments-like-elss-ppf-and-tax-saving-fixed-deposits-are-likely-to-lose-their-sheen-in-new-tax-regime/articleshow/100464933.cms
Website link: https://lexntax.com/
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