Opting for new income tax regime? Don’t stop investing in these financial products : 11-02-2020

As our cover story explains, very few people will find it beneficial to move to the new tax regime. These would be taxpayers who don’t claim too many deductions and exemptions or are looking for ease of compliance by avoiding the drudgery of tax planning. If you are among them, keep in mind that foregoing the deductions under Section 80 should not make you abandon certain instruments.

Life and medical insurance are critical, but are mostly bought to save tax. Planners are saying this will change now. “Everyone should have life and medical insurance irrespective of whether they claim tax deduction for the premium paid,” says Rohit Shah, Founder and CEO, Getting You Rich.

The NPS is another example of an instrument that may fall off the radar of investors if the tax benefits are removed. Right now, it offers additional tax deduction of up to Rs 50,000 under Sec 80CCD(1b). The tax benefits apart, the big draw in the NPS is the ultra-low charges. Fund management charges are capped at 0.01% per year. In comparison, debt funds charge at least 10 times more and the cheapest index mutual fund charges 50 times more.

What’s more, it also offers flexibility to the investor by allowing changes in the asset mix and switching between pension funds without any tax implication. “It is a dedicated retirement avenue that affords great deal of flexibility in investments,” says Suresh Sadagopan, Founder, Ladder 7 Financial Advisories.

Another instrument that should not be ignored is the Public Provident Fund. Even if you forego tax deduction, the yearly interest accrued and proceeds at time of maturity will remain tax-free. “Investors will continue to benefit from assured returns, high interest rates and sovereign guarantee under PPF,” says Hemant Rustagi, CEO, Wiseinvest Advisors.

Similarly, senior citizens should not shun the Senior Citizen Savings Scheme (SCSS) even if they opt for the new tax regime. Sukanya Samriddhi Yojana is another instrument that parents of the girl child can consider even if they don’t claim any tax deduction. Both the SCSS and SSY provide guaranteed returns and offer interest rates higher than what banks are offering.

Source : Times of India

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