New Tax Regime: Should You Continue or Stop Investing in PPF, SSY, or NPS?

Most of those who preferred the old tax regime may now benefit from switching to the new tax regime because it has become more attractive after the personal income tax changes in Budget 2025. Switching to the new regime means losing the option to claim deductions on tax-saving investments.

For those investors who mainly keep their money in Section 80C instruments to save on taxes, switching to the new tax regime can be confusing. Should they keep these investments or stop them completely?

On the other hand, the new tax regime does not offer deductions, but stopping investments like the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), or National Pension System (NPS) without careful consideration could lead to unexpected drawbacks.

Certain Section 80C investments have mandatory minimum contribution requirements. Failing to meet these can result in penalties or even lead to the account becoming inactive.

PPF (Public Provident Fund)

It is a safe and reliable long-term saving option that is currently offering a 7.1% interest rate (as of March 2025). The new tax regime removes Section 80C deductions, and investors should keep their PPF account active for its valuable tax benefits.

PPF provides tax-free interest and maturity benefits under the Exempt-Exempt-Exempt (EEE) model. Since it is supported by the government, it offers stable and risk-free growth, making it a dependable long-term investment, even without tax deductions.

Investors can withdraw funds partially from the 7th year or take a loan from the 3rd year, providing financial flexibility.

SSY (Sukanya Samriddhi Yojana)

Sukanya Samriddhi Yojana is a better choice for a child’s parents, even excluding the tax relief. It guarantees returns with an attractive interest rate of 8.2%, which is higher than most bank rates, making it a sound savings option. It is among the safest and most rewarding saving options for parents who are planning their daughter’s future.

SSY is one of the safest and most rewarding saving options for parents who are planning their daughter’s future. The whole maturity value, along with interest, is tax-free, and hence it is a very good option to finance education or wedding expenses. You can withdraw money only after the girl reaches 18 years, promoting and encouraging disciplined savings planning.

NPS (National Pension System)

The National Pension System (NPS) is a defined contribution pension system. An individual may make contributions towards their individual pension account during employment years to generate a retirement corpus, which pays out a systematic income upon retirement.

As compared to other investment instruments, NPS has a low expense ratio, leading to higher net returns over time. the new tax regime removes deductions, 60% of the NPS corpus remains tax-free at withdrawal, making it a budget-friendly retirement option. It also offers a mix of equity and debt fund investments, helping investors grow a sizable retirement corpus even without tax benefits.

Here are the Important Points to Remember for these Investments:

PPF: If you do not contribute by March 31, 2025, you will have to pay a penalty of Rs. 50 for each year of missed contributions, along with an arrear subscription of Rs. 500 per year.

SSY: If you do not make the minimum deposit in a financial year, your account will be considered defaulted. To regularize it, you will need to pay a minimum contribution of Rs. 250 and a penalty of Rs. 50 for each year of default.

NPS: A minimum contribution of Rs. 1,000 in a financial year must be made to keep your NPS Tier-I account active. The account will go into dormancy if the minimum contribution is not made. To restore it, you will have to pay a penalty of Rs. 100 per year along with the minimum contributions. Point-of-Presence (POP) charges will also be applicable for unfreezing the account.