A humongous 72.8% of the taxpayers have switched to the new tax regime, indicating a march towards the demise of one of India’s dominating investment cults – investments with income tax benefits in mind. All instruments that are listed in Section 80C of the Income Tax Act 1961, are of no use from the tax benefit angle for someone who has migrated to the new tax regime.
PPF investment: Trust of generations
Of the instruments named in this section, Public Provident Fund or PPF has been a trusted name for generations. Everyone thinks with a part of the lustre gone, investments flowing into PPF every year will reduce from this financial year onwards.
However, experts think it is prudent to stay away from the PPF simply due to the tax benefits fading away. The overriding logic: investment experts think having a sold guaranteed-return instrument in one’s portfolio is a prudent thing to do.
Guaranteed-return, long term
“Tax deductibility on PPF was certainly a reason for investors putting their money in PPF but it was a smaller consideration compared to the returns and complete security. So, I think, even if you take away the income tax benefits, many would still invest in the debt instrument. It is always prudent to invest a part of your savings in a guaranteed-return instrument,” said Nilanjan Dey, investment strategist and director Wishlist Capital.
To be sure, the Employees’ Provident Fund or EPF carries a higher return – it was 8.25% in FY24. However, one needs to be employed to have an EPF account and one need not terminate a PPF unlike EPF which continues only till the working life of an individual.
Tax break not only consideration
“It is completely in the realm of possibility that the Centre would gradually phase out the old tax regime altogether. In such a scenario, tax saving won’t be a motive for continuing investments in instruments such as PPF. Securely building a corpus in the long-term, however, presents a different consideration,” said Himadri Mukhopadhyay, a Kolkata-based income tax practitioner for more than three decades.
PPF currently offers an interest rate of 7.1%. If one invests Rs 10,000 every month for 25 years, one can build a corpus of Rs 82,46,411 with complete safety of the funds.
Launched in 1968, PPF had pride of place among common investors due to its high interest rates and full tax exemption. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
