Why shift in wealth-creation strategies under the new tax regime important?

The removal of deductions means investors must focus on real returns and financial goals rather than just tax savings, say experts

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The recent overhaul of tax policies has sparked a significant conversation about the need for individuals to rethink their wealth-creation strategies. With the government’s emphasis on simplifying tax arrangements and increasing take-home pay, taxpayers are now faced with both opportunities and challenges in managing their finances under the new regime. 

 

Income tax slabs under the new tax regime

 

 Rs 0-4 lakh: Nil

 

 Rs 4-8 lakh: 5 per cent

 

 Rs 8-12 lakh: 10 per cent

 

 Rs 12-16 lakh: 15 per cent

 

 Rs 16-20 lakh: 20 per cent

 

 Rs 20- 24 lakh - 25 per cent

 

 Above Rs 24 lakh: 30 per cent

 

The new tax regime provides lower tax rates, but eliminates many deductions and exemptions that previously helped individuals reduce their taxable income. This change directly impacts how people approach tax-efficient investments and financial planning.

  “With the new tax regime rebate making income up to Rs 12 lakh with zero tax liability, and less taxes beyond it, for many there is not any incentive for investing for tax saving. So investment has to be a conscious and informed choice. But a market crash like the current one makes it challenging to continue. I think more investor education needs to be imparted to ensure rational investing behaviour for the investing journey,” said Sujit Sudhakar Bangar, founder, TaxBuddy.com.

  “With the new tax regime offering lower tax rates but fewer deductions compared to the old regime, a strategic shift in wealth creation is essential. Traditional tax-saving instruments may no longer provide the same advantages, thus making it crucial for investors to explore tax-efficient options that ensure long-term financial benefits. Investments like PPF and NPS remain valuable for their long-term wealth-building potential, offering stable returns, compounding benefits, and retirement security,” said Shefali Mundra, tax expert, ClearTax.

 

Ideal wealth strategy going forward

 

“If one has a long term horizon, then 70-80 per cent allocation in equity and the rest in debt, may be ideal. And one can opt for various categories of equity mutual funds from the actively managed space and auto diversify across sectors and market caps. For the debt portion, if your income is anything less than Rs 12,00,000, you can opt for debt funds, FDs, etc. And for individuals in the higher tax slabs, you can opt for arbitrage funds for a duration less than one or two years, and for longer duration investments in debt, you can opt for target maturity fund investing in government securities,” said Shweta Rajani, head - Mutual Funds, Anand Rathi Wealth Limited. 

 

Rajani explains ideal portfolio balance:

 

Income-to-investment ratio: Save at least 20 per cent of your income for future financial security.

 

Income-to-EMI ratio: EMIs should not exceed 40 per cent of your monthly income.

 

Emergency fund: Maintain a reserve equal to six months of income for unexpected expenses.

 

Key takeaways suggested by experts

 

The removal of deductions means investors must focus on real returns and financial goals rather than just tax savings.

 

Tax relief will boost personal disposable income, encouraging both higher consumption and greater savings, especially among middle and upper-middle-income groups.

 

Individuals aged 25-40 are likely to spend more due to increased disposable income. The 30-45 age group may focus more on investments.