Income Tax: Traditional tax-saving investments like PPF and NSC are now less attractive due to the new tax regime, which encourages diversification into higher-return options. These tools are still useful for conservative tactics, according to some analysts.
The new tax structure went into effect by default in FY 2023–2024. Due to this change, many taxpayers are now questioning whether classic tax-saving investments like the National Savings Certificate (NSC), Post Office Savings Scheme, Public Provident Fund (PPF), and National Pension System (NPS) are still worthwhile.Due to the removal of numerous substantial deductions under Sections 80C, 80D, and 80CCD(1) by the present administration, the tax-saving tools that were deemed necessary are becoming less appealing. The question of whether such assets are still a useful tool for creating wealth or if it's time to find alternatives is relevant.
Variety of advantages
Undoubtedly, the current tax system has altered the landscape of tax-saving investments, making them less applicable to a large number of taxpayers. On this topic, experts are not entirely in accord. Even if the tax-saving incentive is no longer available, the financial products PPF, NSC, and NPS are still a component of an investor's overall financial plan.
Tax-saving tools can be utilized for retirement planning, risk management, or portfolio diversification, depending on the needs of the individual.
According to conservative investors, classic savings plans like PPF and NSC are no longer as appealing for tax savings as they once were due to recent changes in tax laws, according to Swapnil Aggarwal, director of VSRK Capital. He does think that conservative investors looking for low-risk options can still use these instruments, though.
The appeal of programs like PPF and NSC for taxpayers has diminished as a result of recent tax policy changes that eliminated rebates under sections 80C, 80D, and 80CCD(1). Conservative investors are the main target of these securities, even if they nevertheless offer low-risk advantages and assured returns. Due to this change, investors now have a chance to review their holdings and think about diversifying into higher-yielding assets like stocks. More strong wealth growth can result from a balanced strategy that prioritizes long-term financial goals over only pursuing tax savings. In addition to increasing growth potential, diversification helps investments match changing financial objectives.
Aggarwal urges investors to abandon the idea that they should only make investments in order to save money on taxes. Rather, he supports a more varied approach to investing that is in line with long-term objectives, such as equity-based investments that have the potential to yield larger returns.
Additional advantages
Maxiom Wealth's Director of Strategy, Manoj Trivedi, provides a clear viewpoint on the ongoing value of tax-saving tools. He makes the argument that these tools are still useful today. For instance, a very safe borrower's PPF yields a very high post-tax return. It works well as a retirement planning tool as well. In a similar vein, purchasing life insurance is crucial. Therefore, these tools are not superfluous. He asserts that we must base our investments on the demands of the investor.
Trivedi contends that the investor's larger financial objectives, such as risk tolerance and retirement planning, should guide their decision to participate in these instruments, even though the new tax regime may have reduced the immediate tax rewards.
Financial objectives
Teamlease Regtech's founder and director, Sandeep Agrawal, emphasizes the new tax regime's flexibility. He notes that people can now make decisions based on their own financial objectives rather than just trying to save money on taxes because mandatory tax-saving investments have been eliminated.
Without being pressured by tax-saving incentives, the new tax regime gives people the freedom to select investments that better suit their financial objectives, risk tolerance, and liquidity requirements. The new regime permits a more individualized and calculated approach to wealth creation, in contrast to the previous one, which encouraged investments through deductions under sections like 80C, 80D, and 80CCD(1). Instead of locking money into tax-saving programs, investors can now concentrate on solutions with higher returns or more flexible withdrawal policies.
Agrawal emphasizes that instead of only searching for products that provide tax relief, people may now concentrate on investing strategies that best fit their long-term wealth building needs thanks to the new tax regime.
can choose the previous regime.
As a counterargument, one may even choose to maximize the tiny savings instruments by sticking with the previous tax structure.
Under the previous tax system, taxpayers who want to accumulate long-term wealth without facing penalties can still think about tax-saving investments like ELSS, NPS, and ULIPs, according to Sudhir Kaushik, co-founder and CEO of Taxspanner, a division of Zaggle. These choices have the opportunity to create wealth in addition to lowering tax obligations.
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