The new tax regime is a game changer in Indian taxation. From 1s April 2023, we expect a large number of taxpayers, particularly young earners, high earners and those who have completed their home loan or have no need for one, to shift to the new regime.
Even though section 80C is not valid in the new tax regime, there are some 80C investments you can continue in the new tax regime – not for lowering tax but for future needs. Also, see Tax deductions available in the New Tax Regime from 1st April 2023.
Let us go over them one by one. The following assumes you appreciate the importance of goal-based investing and an asset allocation for achieving those goals. If you need help with exiting some products and investing in suitable ones, you can work with a SEBI registered fee-only advisor on our list – more than 1000 members of our community are their clients.
1 Equity Linked Saving Scheme (ELSS)
- New investments: Avoid
- Existing investments: Wait until performance is satisfactory or if you wish to rebalance from equity to debt.
2 National Pension Scheme (NPS)
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If it is mandatory or your employer contributes to it, you can keep it going.
- New investments: You don’t need the NPS unless your employer is willing to contribute (do consider job switches too!)
- Existing investments: You can exit if the current corpus is less than 2.5 lakhs. If the current corpus is more than 2.5 lakhs, contribute the minimum to keep the account alive. Else stop.
3 Unit Linked Insurance Plan (ULIP)
- New investments: Never buy these!
- Existing investments: Exit after five years.
4 Traditional life insurance policies (endowment, moneyback, guaranteed income, deferred pension etc.)
- New investments: Never buy these!
- Existing investments: Except for deferred pension plans, exit the rest once eligible for surrender, provided you have paid premiums for less than half of the premium payment tenure. Please get expert advice from a SEBI registered fee-only advisor reg this.
5 Public Provident Fund (PPF)
- New investments: Start one only if you need it. Do not go overboard. Stick to an asset allocation. PPF has gone from EEE (exempt, exempt, exempt) to IEE (irrelevant, exempt, exempt). Invest as per a set asset allocation.
- Existing investments: Rethink your asset allocation. Are you investing enough in equity? Reduce investments as necessary. Continue and extend as necessary. My PPF account is maturing: should I extend or open a new one?
6 Sukanya Samriddhi Yojana (SSY)
It is meant for the lower income group and is unsuitable for planning a girl’s education. See: Sukanya Samriddhi Yojana vs PPF: An Illustration. Ifyou have one, use it to fund higher education or marriage.
- New investments: You don’t need one. PPF, with a good dose of equity, will get the job done.
- Existing investments: Continue (no other choice) but rethink your asset allocation. Are you investing enough in equity? Reduce investments as necessary.
7 National Savings Certificate (NSC)
- New investments: Unnecessary.
- Existing investments: Continue (not much else can be done)
8 Tax saving Fixed Deposit (FD)
- New investments: Avoid
- Existing investments: Continue (not much else can be done)
9 Employee Provident Fund (EPF)
- New investments: Desirable, especially if mandatory! PPF is not necessary if you have EPF.
- Existing investments: Continue.
10 Voluntary Provident Fund (VPF)
- New investments: Avoid
- Existing investments: Not much can be done with these! Leave them as is.
11 Senior citizen savings scheme (SCSS)
- New investments: Yes, if necessary. See: Benefits for Senior Citizens proposed in Budget 2023
- Existing investments: Continue (not much else can be done)
In summary, some 80C investments can be continued in the new tax regime. While we will not get tax benefits, as part of a well-diversified portfolio, they can be used to meet our future needs.
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