Taxes 2025: Should you continue investing in tax-free schemes even after choosing New Tax Regime?

With over 60 per cent of taxpayers adopting the New Tax Regime, a significant shift is occurring in how individuals approach their investments. This transition has sparked debate among investors, particularly concerning the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and National Pension System (NPS), which offered tax deduction under Old Tax Regime under Section 80C. The new regime eliminates deductions. 

Despite the changes, these financial products remain crucial due to their inherent benefits, such as risk-free returns and disciplined savings, which contribute to long-term financial health and retirement security. 

The New Tax Regime is known for its simplified form of tax calculation. Its appeal lies in its straightforward approach, offering lower tax rates and simplified filing processes. 

However, it also eliminates certain tax incentives tied to investments, compelling individuals to reassess their strategies. Notably, the elimination of Section 80C deductions does not diminish the intrinsic value of PPF, SSY, and NPS. 

These instruments are inherently designed for long-term goals and financial stability, providing benefits that go beyond mere tax savings. The increased adoption of the new regime, alongside rebate changes allowing net tax zero on incomes up to Rs 12 lakh, underscores the need for a strategic investment approach that prioritises financial freedom over immediate tax benefits. 

“Investing should go beyond just availing tax benefits, it should be about building financial security and achieving long-term financial freedom. While the new tax regime eliminates deductions for investments like PPF, SSY, and NPS, these instruments continue to offer valuable advantages such as risk-free returns, disciplined savings, and retirement benefits,” Shefali Mundra, Tax Expert, ClearTax told Business Standard.

Despite the absence of tax deductions, the continued investment in PPF, SSY, and NPS remains advantageous. These instruments support wealth accumulation and retirement planning, offering risk-free returns and pension benefits. The NPS, for example, provides a structured pension plan, ensuring a steady income post-retirement, while PPF guarantees risk-free compounding. These attributes make them indispensable components of a diversified financial portfolio, irrespective of the current tax incentives. The new regime's focus on lower tax rates can be complemented by these products to achieve long-term financial goals. 

“Already more than 60 per cent of individual users have been using the new tax regime. With recent changes in rebate rules, income up to Rs 12 lakh has become net tax zero. This will certainly increase further adoption of the new tax regime. Shift in favour of the new tax regime will have its impact on reduction in ELSS allocations by individual tax users. PPF, NPS and SSY are mostly long-term goal-based investments, therefore I don’t think there is any discontinuance of PPF, NPS or SSY,” said Sujit Sudhakar Bangar founder, TaxBuddy.com.

The flexibility introduced by the new tax regime allows taxpayers to switch between the old and new systems annually, offering a unique opportunity to optimise their tax strategies. This flexibility, however, should not overshadow the discipline needed in long-term investment planning. The commitment to PPF, SSY, and NPS requires a focus on financial security rather than short-term tax gains. Such disciplined investing ensures financial independence, allowing individuals to meet their future financial objectives seamlessly. The decision to invest should be driven by a broader financial strategy rather than solely by tax deductions.

As taxpayers navigate the challenges presented by the new tax regime, it is essential to make informed investment decisions. Assessing whether the new regime leads to greater savings or aligns better with one's financial goals is crucial.

Continuous investment in PPF, SSY, and NPS aligns with a philosophy of financial security and independence, transcending the limitations imposed by current tax policies. Investors are encouraged to evaluate their financial plans, ensuring that their investments support long-term stability and wealth growth, beyond the immediate allure of tax exemptions.