The new tax regime effective from 1st Apr 2020 gives individuals and HUF taxpayers an option to choose between lower tax rates by forgoing certain exemptions and higher tax rates while availing exemptions (old tax regime). The newer tax regime may not suit everyone. Taxpayers need to evaluate the tax savings made under both the old and new regime to take a call.
For taxpayers having home or education loans, tax deductible life insurance policies, a higher salary of more than 15lakhs, or who can save a lot through exemptions, the older regime may be more suitable. Hence these taxpayers can consider investing in ELSS to save tax under the old tax regime. The newer regime definitely saves you from a lot of paperwork at the end of the year in terms of submitting investment proofs as compared to the old tax regime but the old regime also helps you make few important investment and savings decisions. It forces you to make these investments or savings annually be it in ELSS, pension plan or PPF. Some taxpayers may already be having SIPs in ELSS. They should evaluate the tax benefit under both regimes before stopping their SIPs.
Which tax regime will help you save more on taxes will depend entirely on your income and salary structure? You should consult a tax consultant if you are unable to calculate your tax liability under both the tax regimes by yourself. Such a comparison only can guide you with your decision to continue investing in ELSS that not only helps save tax but offers you the growth potential of equities. Even if the new tax regime suits you better, you can still consider investing in ELSS from the wealth creation perspective. If you are someone who tends to withdraw during volatile markets, the lock-in period will help you stay put and ride over the volatility in the short-term. Since ELSS funds have a lock-in period of 3 years, if you invest today, you can take your money out only after 3 years in case of lumpsum investment. The lock-in period is also applicable to each SIP payment. If you want to withdraw the full amount invested over 12 months, you will have to wait till the last SIP instalment has completed 3 years.