Should you continue investing in PPF, SSY, NPS under the new regime?

For taxpayers who have relied on Section 80C deduction to avail tax benefits, the transition to the new tax regime introduces a dilemma: should they continue investing in Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and National Pension System (NPS), or discontinue these investments altogether? The new tax regime eliminates the deductions previously available under Section 80C, compelling investors to reassess their strategies.

 

“Salaried taxpayers having non-business income will have the option to choose between the new and old tax regimes every year. Hence, they can switch between the two tax regimes every year without any restriction before the due date of filing the tax return,” said SR Patnaik, Partner (head-taxation), Cyril Amarchand Mangaldas.

 

 

The income tax slabs under the new tax regime applicable from April 1, 2025, are as follows:

 

Income up to Rs 4 lakh: Nil

 

Income from Rs 4 lakh to Rs 8 lakh: 5 per cent

 

Income from Rs 8 lakh to Rs 12 lakh: 10 per cent

 

Income from Rs 12 lakh to Rs 16 lakh: 15 per cent

 

Income from Rs 16 lakh to Rs 20 lakh: 20 per cent

 

Income from Rs 20 lakh to Rs 24 lakh: 25 per cent

 

Income above Rs 24 lakh: 30 per cent

 

Tax slabs under the old tax regime:

 

Income up to Rs 2,50,000: Nil

 

Income from Rs 2,50,001 to Rs 5,00,000: 5 per cent

 

Income from Rs 5,00,001 to Rs 10,00,000: 20 per cent

 

Income above Rs 10,00,000: 30 per cent

 

The old tax regime also allows for various deductions, including:

 

Section 80C: Deductions up to Rs 1,50,000 for investments in PPF, ELSS, and LIC premiums.

 

Section 80D: Deductions for health insurance premiums.

 

Section 24(b): Deductions for home loan interest up to Rs 2,00,000.

 

Additional exemptions, such as benefits like HRA and LTA.

 

“Investing should go beyond just availing tax benefits, it should be about building financial security and achieving long-term financial freedom. While the new tax regime eliminates deductions for investments like PPF, SSY, and NPS, these instruments continue to offer valuable advantages such as risk-free returns, disciplined savings, and retirement benefits,” said Shefali Mundra, Tax Expert, ClearTax.

 

“Already more than 60 per cent of individual users have been using the new tax regime. With recent changes in rebate rules, income up to Rs 12 lakh has become net tax zero. This will certainly increase further adoption of the new tax regime. Shift in favour of the new tax regime will have its impact on reduction in ELSS allocations by individual tax users. PPF, NPS and SSY are mostly long term goal based investments, therefore I don’t think there is any discontinuance of PPF, NPS or SSY,” said Sujit Sudhakar Bangar founder, TaxBuddy.com.

 

So should taxpayers continue with PPF, SSY, NPS investments or discontinue them altogether?

 

“Tax planning should be a part of financial planning, not the other way around. A well-structured investment strategy, focused on financial freedom rather than just tax benefits, will always yield better long-term results,” Mundra said.

 

Why are tax saving plans important?

 

Financial freedom over tax savings: Tax benefits under Section 80C should not be the sole reason for investing. Investments like PPF and NPS help build wealth, ensuring financial stability in the long run, regardless of tax incentives.

 

Retirement & wealth growth: Instruments like NPS provide pension security, and PPF offers risk-free compounding. Even without tax deductions, these remain crucial for a well-balanced financial portfolio.

 

Flexibility versus discipline: The new tax regime offers lower tax rates but removes incentives to invest in tax-saving instruments. However, disciplined, long-term investing, whether tax-deductible or not, helps secure financial independence and future goals.

 

Making informed choices: Investors should evaluate whether shifting to the new tax regime actually results in better savings or if continuing investments in these schemes aligns with their financial goals beyond tax deductions.