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Choose the new tax regime with these old investment products

The introduction of the new tax regime might have led to chaos in your mind after announcing the Union Budget 2020. While many of you might have hoped for an increase in the exemptions and deductions, the rest might have expected a broad income tax slab. Today, Budget 2020 might have dashed all your beliefs since it removed deductions and exemptions. However, you can still choose the new tax regime with the top three traditional investment products given below:

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Public Provident Fund (PPF)

PPF has been a government-backed traditional investment product in the Indian market since 1968. Since the government backs PPF, the default risk can be negligible, and the investment rate can be relatively high. The primary aim of PPFs can be to mobilize your savings in the form of investment that can offer decent returns on investment. As an account holder, you might not be eligible to pay taxes on the generated returns from the interest rates.

If you do not wish to forego tax deductions under Section 80C of the Income Tax Act, 1961, you should choose a PPF investment. Under PPF, the interest rate earned and the maturity proceeds can be tax-free. While filing your income tax returns, you should specify that you have claimed a deduction under your PPF account.

National Pension Scheme (NPS)

NPS Scheme is a retirement investment plan offering long-term benefits to lead a secure future. It is an initiative by the Central government for the well-being of retirees. To invest in NPS Scheme, you should be a part of public, private, and unorganized sectors except for India’s armed forces.

Following the new tax regime, you might be unable to claim a deduction of up to Rs. 50,000 on self-contribution towards NPS under Section 80C of the Income Tax Act, 1961. However, if you are an employer, your contribution of 10% can qualify for tax benefits. Although the fund management charges under NPS can be as low as 0.01% of the Assets Under Management (AUM), you should invest in this type of investment if you choose the new tax regime. Fund management charges can be 50 times higher than debt and mutual funds.

Senior Citizens Savings Scheme (SCSS)

As the name suggests, the SCSS scheme is a government plan for senior citizens’ financial well-being. The primary aim of the SCSS scheme can be to offer financial aid to retirees when the flow of their professional income stops. With the regular payout from the SCSS scheme, you can lead a comfortable retirement period.

If you wish to choose the new tax regime, select the SCSS scheme. Under the SCSS scheme, you can receive guaranteed returns and relatively high-interest rates. Moreover, investments made under the SCSS scheme can be eligible for a tax deduction by Section 80C of the Income Tax Act, 1961. If the interest earnings from SCSS are above Rs. 50,000 in one fiscal year, you can be liable to pay Tax Deducted Source (TDS) for the interest earned.

To conclude, introducing the new tax regime might have created chaos in your mind. Irrespective of the confusion, tax payments can be an inevitable part of your lives. With these traditional investment products, you can effectively reduce your tax liability, even under the new tax regime. Moreover, choose between these long-term investment plans based on your financial requirements, investment goals, and risk appetite with the right research and expertise.

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