New income tax regime savings: The adoption of the new income tax regime has eliminated most deduction-linked incentives. However, evaluating investments purely on tax efficiency can be misleading. Many legacy instruments serve essential portfolio or risk-management roles, and discontinuing them may impair financial resilience or return optimization. Find out which tax saving investments should be continued under the new regime and why.
PPF: Risk-free, tax-sheltered retirement corpus
The Public Provident Fund remains one of the few true EEE (Exempt-Exempt-Exempt) instruments. Its 7.1% tax-free yield equates to a pre-tax return of almost 10% for individuals in the 30% bracket. This is much higher than most other fixed-income options. The sovereign guarantee makes it a low-risk anchor in the debt allocation of a retirement portfolio. Though liquidity is constrained (15-year tenure, limited partial withdrawals), for long-horizon investors this illiquidity enforces discipline.
Recommendation: Continue contributions if retirement corpus accumulation is a priority.
Term insurance: Non-negotiable risk coverage
A term plan is not an “investment” but a hedge against loss of income due to the breadwinner’s death. The benefit-cost ratio (coverage in crores vs. annual premium in thousands) makes it indispensable. The absence of deduction under Section 80C is immaterial because the utility lies in protecting dependents from catastrophic financial loss. Discontinuing a term plan solely due to lack of tax arbitrage exposes the household balance sheet to significant risk.
Recommendation: Maintain till financial independence is achieved.
Health insurance: Mitigating catastrophic expenditure risk
Medical inflation in India averages 10–12% annually, far above headline CPI. Hospitalisation expenses, especially for critical care, can erode several years’ worth of household savings. Health insurance thus functions as a risk diversification tool against health-related liabilities, transferring volatility to the insurer. Covid underscored the fragility of self-insurance strategies. Deduction under Section 80D is incidental; continuation is essential for portfolio risk control.
Recommendation: Renew without interruption.
NPS: Tax arbitrage under Section 80CCD(2) still available
While employee contributions under Section 80C no longer yield benefit in the new regime, contributions up to 14% of basic salary remain deductible under Section 80CCD(2). From a portfolio perspective, the NPS offers low-cost, diversified exposure across equity, government bonds, and corporate debt, with a mandatory annuitisation element. Liquidity is highly restricted, but as a retirement-focused product, this illiquidity aligns with purpose.
Recommendation: Continue if employer-linked; consider voluntary contributions for disciplined retirement savings despite lower flexibility.
ELSS : Replace with regular diversified equity funds
ELSS was attractive primarily due to Section 80C deduction. With that gone under the new regime, its three-year lock-in reduces flexibility without offering any benefit. Equity as an asset class remains critical for long-term wealth creation, but allocation is better channelled via diversified open-ended equity funds or index funds, which offer similar risk-return profiles without illiquidity.
Recommendation: Exit ELSS SIPs, but maintain overall equity exposure.
Traditional insurance: Capital protection vs. opportunity cost
Endowment and money-back plans deliver IRRs of 4–5%, which is well below inflation and alternative debt instruments. Their “dual-use” (insurance + savings) structure leads to suboptimal risk-return trade-offs: inadequate insurance cover combined with low investment returns. If the policy has long residual tenure, surrender or making it paid-up frees capital for redeployment into higher-yielding assets. However, if maturity is near, sunk cost fallacy dictates holding till completion to avoid loss of accrued bonuses.
Recommendation: Exit long-tenure policies; hold if close to maturity.
NSCs and tax-saving FDs: Liquidity constraints overshadow yields
Tax-saving fixed deposits and five-year NSCs currently offer 7–7.7%, but interest is taxable and liquidity is locked for the full term. Post-tax yields fall below inflation-adjusted requirements for wealth preservation. In contrast, shorter-tenure deposits (1–2 years) or debt mutual funds offer more flexibility to manage duration and liquidity risk.
Recommendation: Don’t make fresh allocations.
PPF: Risk-free, tax-sheltered retirement corpus
The Public Provident Fund remains one of the few true EEE (Exempt-Exempt-Exempt) instruments. Its 7.1% tax-free yield equates to a pre-tax return of almost 10% for individuals in the 30% bracket. This is much higher than most other fixed-income options. The sovereign guarantee makes it a low-risk anchor in the debt allocation of a retirement portfolio. Though liquidity is constrained (15-year tenure, limited partial withdrawals), for long-horizon investors this illiquidity enforces discipline.
Recommendation: Continue contributions if retirement corpus accumulation is a priority.
Term insurance: Non-negotiable risk coverage
A term plan is not an “investment” but a hedge against loss of income due to the breadwinner’s death. The benefit-cost ratio (coverage in crores vs. annual premium in thousands) makes it indispensable. The absence of deduction under Section 80C is immaterial because the utility lies in protecting dependents from catastrophic financial loss. Discontinuing a term plan solely due to lack of tax arbitrage exposes the household balance sheet to significant risk.
Recommendation: Maintain till financial independence is achieved.
Health insurance: Mitigating catastrophic expenditure risk
Medical inflation in India averages 10–12% annually, far above headline CPI. Hospitalisation expenses, especially for critical care, can erode several years’ worth of household savings. Health insurance thus functions as a risk diversification tool against health-related liabilities, transferring volatility to the insurer. Covid underscored the fragility of self-insurance strategies. Deduction under Section 80D is incidental; continuation is essential for portfolio risk control.
Recommendation: Renew without interruption.
NPS: Tax arbitrage under Section 80CCD(2) still available
While employee contributions under Section 80C no longer yield benefit in the new regime, contributions up to 14% of basic salary remain deductible under Section 80CCD(2). From a portfolio perspective, the NPS offers low-cost, diversified exposure across equity, government bonds, and corporate debt, with a mandatory annuitisation element. Liquidity is highly restricted, but as a retirement-focused product, this illiquidity aligns with purpose.
Recommendation: Continue if employer-linked; consider voluntary contributions for disciplined retirement savings despite lower flexibility.
ELSS : Replace with regular diversified equity funds
ELSS was attractive primarily due to Section 80C deduction. With that gone under the new regime, its three-year lock-in reduces flexibility without offering any benefit. Equity as an asset class remains critical for long-term wealth creation, but allocation is better channelled via diversified open-ended equity funds or index funds, which offer similar risk-return profiles without illiquidity.
Recommendation: Exit ELSS SIPs, but maintain overall equity exposure.
Traditional insurance: Capital protection vs. opportunity cost
Endowment and money-back plans deliver IRRs of 4–5%, which is well below inflation and alternative debt instruments. Their “dual-use” (insurance + savings) structure leads to suboptimal risk-return trade-offs: inadequate insurance cover combined with low investment returns. If the policy has long residual tenure, surrender or making it paid-up frees capital for redeployment into higher-yielding assets. However, if maturity is near, sunk cost fallacy dictates holding till completion to avoid loss of accrued bonuses.
Recommendation: Exit long-tenure policies; hold if close to maturity.
NSCs and tax-saving FDs: Liquidity constraints overshadow yields
Tax-saving fixed deposits and five-year NSCs currently offer 7–7.7%, but interest is taxable and liquidity is locked for the full term. Post-tax yields fall below inflation-adjusted requirements for wealth preservation. In contrast, shorter-tenure deposits (1–2 years) or debt mutual funds offer more flexibility to manage duration and liquidity risk.
Recommendation: Don’t make fresh allocations.
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