Continue with PPF, SCSS, SSY, term and health cover under new tax regime

Stop fresh investments in ELSS and Ulip; decision to exit post lock-in should depend on performance

A salaried individual can choose between the old and the new tax regime every financial year. The new regime levies lower tax rates but doesn’t allow deductions. People who have opted for this default regime need to decide about the tax-saving instruments they were investing in earlier.

“The basic premise for choosing any product should be its risk-reward and whether it helps you meet your financial goals. Tax saving should be a by-product,” says Deepali Sen, founder and partner, Srujan Financial Advisers.

Public Provident Fund (PPF)

PPF, an exempt-exempt-exempt (EEE) scheme, offers 7.1 per cent return and remains attractive for building a tax-free corpus. “Although the first E will go away under the new tax regime, the other two Es remain. The interest earned and the maturity amount will continue to be tax-free,” says Raj Khosla, founder and managing director, MyMoneyMantra.com.

People who were putting money in the Voluntary Provident Fund (VPF) but discontinued due to the imposition of the Rs 2.5 lakh cap on contributions earning tax-free interest will find the PPF especially useful. Khosla recommends continuing to invest in PPF.

Equity Linked Savings Scheme (ELSS)

ELSS is run like flexi-cap schemes, but it has a three-year lock in. Since an investor opting for the new tax regime won’t avail of the Section 80C deduction, further investments in these funds should be stopped (unless you feel the lock-in helps you avoid the tendency to exit early).

As for the existing money, Pankaj Shrestha, head-investment services, Prabhudas Lilladher, says, “An investor can consider redemption after the three-year lock-in period ends. The money can be invested in open-end equity schemes like large-, mid-, small-, and flexible-cap funds, depending on the investor’s risk profile.”

If the scheme is doing well, leave your money in it.

Unit Linked Insurance Plans (Ulips)

They invest in a mix of equity and debt. Their returns are market-linked. Here, again, fresh investments should be stopped to avoid the five-year lock-in (unless you want the discipline imposed by the lock-in).

“If you have paid the premium for five years and your purpose for investing in the Ulip was only tax saving, then you may stop investing in it and cash out the fund value. But if the Ulip’s funds are performing well, you may continue with your investments,” says Sushil Valeja, vice president-life insurance, Anand Rathi Insurance Brokers.

Traditional insurance plans

Financial advisers generally don’t recommend traditional plans. “Generally, they are poor investments. Exiting them early is also difficult. If the policy is less than three years old, weigh the pros and cons of exiting carefully since the first premium will be lost and the payable value of the other premiums could be very low,” says Col. Sanjeev Govila (Retd), a Sebi-registered investment advisor and chief executive officer (CEO), Hum Fauji Initiatives, a financial planning firm.

Policies older than three years can be made “paid up”.

Senior Citizens Savings Scheme (SCSS)

Generally, senior citizens invest in SCSS not for the tax deduction but for the higher interest rate: 8.2 per cent currently, which is taxable.

“Senior citizens should continue to invest in SCSS as the interest paid on it is usually higher than bank deposits. With the investment limit being increased from Rs 15 lakh to Rs 30 lakh per permanent account number (PAN), senior citizens may increase their investment in it after considering their income-tax slab,” says Jigar Patel, member, Association of Registered Investment Advisors (ARIA).

Sukanya Samriddhi Yojana (SSY)

It offers an 8 per cent tax-free return. “Continue investing in it for the benefit of the girl child,” says Patel.

Term and medical insurance

Term insurance is essential for protecting the family’s financial future against the risk of the breadwinner’s early demise. “Continue with your term plan so long as the need for this cover exists, irrespective of the tax regime,” Govila says.

Medical insurance is another must-have. Patel says, “With medical expenses being already high and rising rapidly, health insurance should be continued with.”