If you are thinking of switching to the new income tax regime or have already done so, now is the time to re-review your investment strategy. The rates in the new tax regime may be lower and the process may seem easier, but it does not provide the benefits of deductions and exemptions like the old regime. In such a situation, the big question is whether it is still wise to invest money in popular investment options like PPF and ELSS?
Difference between new and old regime
In the old tax regime, tax exemption of up to Rs 1.5 lakh is available on investments in PPF and ELSS under Section 80C of the Income Tax Act. But this deduction is not available in the new regime. This is why many taxpayers are in a dilemma whether to continue investing in these schemes or not.
PPF: Secure and Tax-Free Growth
Public Provident Fund (PPF) is a government scheme, which is considered a safe and long-term investment. In this, there is no tax on investment, interest received and maturity amount. It has EEE (Exempt-Exempt-Exempt) status. Although PPF will not get deduction under section 80C in the new tax regime, its tax-free returns will continue. The benefit of compounding over a period of 15 years makes it attractive for long-term investors.
ELSS: Lower lock-in, better return potential
Equity Linked Savings Scheme (ELSS) is a tax saving scheme of mutual funds with a lock-in period of three years. This is an equity based scheme, so there is a possibility of better returns in the long term. There will be no tax deduction on ELSS in the new regime, but long term capital gain up to Rs 1.25 lakh in a financial year is tax-free. If an investor’s goal is to build long-term wealth, ELSS can still be a strong option.
What to do after all?
If you were investing in PPF and ELSS only for tax savings, then their attractiveness may reduce somewhat in the new regime. But if your goal is to create a safe and balanced fund over the long term, both these options are still relevant.
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