How To Evaluate Investments Without Tax Benefits

Data shows that a large majority of the taxpayers have shifted to the new tax system. Available figures show that over 70% of the returns filed till July 31, were in the new tax regime. This indicates that these taxpayers are no longer claiming tax deductions, as the new tax regime does not allow them. This situation has put the investments into several areas under cloud because a lot of these were getting tax benefits, and hence now, with these no longer available, the investments will have to be evaluated differently. 

Tax Saving Investments

Tax-saving investments are typically deducted under Section 80C of the Income Tax Act. These instruments are present for a specific purpose, but they have been given the benefit of allowing the taxpayer to take a deduction up to Rs 1.5 lakh in a year. Some of the more popular investments in this category include the Public Provident Fund, National Savings Certificate, Sukanya Samriddhi, and Senior Citizens Savings Scheme, among others.

For a long period of time, the individual taxpayer has used these options as they provide a safety element in the form of the backing of the government, and at the same time, there is the added benefit of the tax deduction. If the individual taxpayer has shifted to the new tax regime then automatically the tax deduction is irrelevant as this is not available under the new calculations. 

Focus On Basic Benefit 

Every investment option that is present has been introduced with a specific target audience and goal in mind. For instance, the Senior Citizen Savings Scheme caters to retirees seeking a consistent income stream. The basic benefit of this scheme is intact, and for those senior citizens who find that this meets their requirements, they should continue to take the benefit that it provides. Similarly, for retirement planning, there is the Public Provident Fund, which can help in taking up a part of the debt exposure that is required for this planning. Hence, it is essential to go back to the basics and take a look at the benefits of the scheme before deciding on the investment. 

Taxation Of Income Important 

The new tax regime takes away the benefit of deducting the amount invested in many of these instruments because the Section 80C deduction is not available. There is another angle that also needs to be considered, and this is about the income that is generated from the investment and its taxability. There is nothing that has changed on this front. For instance, both the interest from PPF and the Sukanya Samriddhi interest continue to be tax-free. In this case, the tax impact of the income will ensure that the net return for the investment remains higher, and this can make it attractive. 

Make Effort To Invest 

The new tax regime has removed the tax benefit of various investments. This reduces the burden of having to compulsorily invest in several instruments just to save taxes. But this does not mean that the taxpayer should stop investing. It is essential that the investment process continues without a break, and the only thing is that this needs to be done in an area where there is a need for the investor to invest. This will ensure that their goals are being achieved and that the money is also being put to good use. 

Arnav Pandya is founder of Moneyeduschool