Old vs new tax regime: Should you still invest under Section 80C?

For years, taxpayers have sworn by Section 80C deductions. Investments in public provident fund (PPF), ELSS mutual funds, life insurance, or tuition fees helped shave Rs 1.5 lakh off taxable income.

But the new income tax regime, with lower rates and no major deductions, has changed that, with taxpayers in dilemma over continuing with 80C investments?

Some shades of grey

The new regime is tempting. It promises simplicity — no need to collect bills, track exemptions, or rush to buy a last-minute tax-saving product. Yet for people deeply invested in the culture of deductions, the shift is not so black-and-white.

Abhishek Kumar, a SEBI-registered investment adviser, said the math matters. “By comparing the benefit of Section 80C deductions and other exemptions available under the old regime with the expected savings from the lower slab rates under the new regime, one can arrive at a decision,” he said. “It may still make sense to continue under the old regime if the eligible deductions and exemptions exceed the tax savings from the reduced rates in the new regime.”
In other words, if your total deductions — across HRA, 80C, 80D (health insurance), home loan interest, and beyond add up to a significant chunk, you may still be better off under the old rules.

Review your portfolio

While numbers matter, so does intent. For decades, tax breaks forced Indians into certain investments but once the tax angle fades, the real value of these products must be re-examined.

Taxpayers need to differentiate between goal-linked investments and tax-driven investments, Kumar said.

“The first step is to evaluate each investment to see if it primarily serves as a tax-saving instrument or as a long-term wealth creation tool and then rebalance the portfolio,” he said. “This approach allows investors to gradually phase out products held solely for Section 80C benefits (like certain ULIPs or PPF contributions) and redirect those funds toward instruments better aligned with their goals.”

Imagine ULIPs bought just for deduction or long PPF commitments with little liquidity. If their role in your financial life is minor once the tax advantage goes, it may be time to exit slowly and channel that money into flexible equity mutual funds, debt funds, or simply into your emergency savings.

“For those opting for the new regime, certain investment strategies can be reconsidered. For instance, instead of investing in ELSS mutual funds (which qualify for tax deductions under Section 80C but carry a three-year lock-in), one might prefer diversified equity funds, which is similar to ELSS and comes without lock-in restrictions,” said Deepak Kumar Jain, Founder & CEO of TaxManager.in

Financial fortress

There is another trap. With no compulsory incentive to invest for tax savings, some people may stop investing altogether. Money once committed can be squandered easily.

It a behavioural red flag, warned Kumar. Even under the new system, one should not skip essentials such as life insurance or health insurance just because tax deductions disappear. Financial protection must stand on its own merit.

One of the underrated perks of the new system is the choice every year.

“Another advantage of the new tax regime is flexibility. Individual taxpayers can switch between the new and old regimes each financial year, depending on which one provides greater savings,” Jain said. “Moreover, the option is available right up to the time of filing the return.” This flexibility allows salaried individuals to make annual comparisons instead of locking themselves permanently into one system.

Tax savings, while useful, should never be the only driver. “Investment decisions should be driven by financial goals and needs, not just by tax benefits. Tax savings are an advantage, not the primary reason to invest,” he said.

The choice is between reactive tax planning and proactive financial planning.