Many taxpayers who favored the old tax regime earlier may now find it advantageous to move to the new tax regime, as the new tax regime has become even more alluring after the personal income tax amendments in Budget 2025. However, this shift comes with a price – the inability to claim deductions on investments that save taxes.
For investors who primarily invested in Section 80C instruments to avail tax benefits, the shift to the new tax regime presents an important dilemma—should they continue with these investments or discontinue them altogether? While the new tax regime eliminates the advantage of deductions, discontinuing certain investments like Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and National Pension System (NPS) without careful consideration can have unintended consequences.
Also read: NSC vs bank FDs: Which is a better tax saving option?
What are the penalties for not making minimum contributions to PPF, NPS, SSY?
Some Section 80C investments come with mandatory minimum contribution requirements. If these are not met, investors may face penalties or even risk their accounts becoming inactive.
Here’s what you need to keep in mind for each of these investments:
PPF: If you fail to make the contribution by March 31, 2025, then you will have to pay a penalty of Rs 50 for each year you fail to make the minimum contribution along with an arrear subscription of Rs 500 for each year.
Also read: Have income tax slabs for FY 2025-26 in new, old tax regime changed in new Income Tax Bill?SSY: If the minimum deposit is not made in a financial year, then it will be treated as a defaulted account. To regularise the account, you will be required to pay a minimum contribution of Rs 250, along with a penalty of Rs 50 for each defaulted year.NPS: A minimum contribution of Rs 1,000 per financial year is necessary to keep the account active. If the minimum contribution is not made to the NPS Tier-I account, then the account will become dormant. To revive the dormant NPS account, you will have to pay a penalty of Rs 100 every year along with minimum contributions. Point-of-Presence (POP) charges will also be added for unfreezing the NPS account.
Public Provident Fund (PPF)
The Public Provident Fund (PPF) remains one of the most secure long-term savings instruments, offering an interest rate of 7.1% (as of March 2025). While the new tax regime eliminates Section 80C deductions, investors should carefully consider keeping their PPF accounts active due to its unique tax advantages.
Why should you keep your PPF account active?
Unlike fixed deposits (FDs) or debt mutual funds, where interest earnings are taxable, PPF offers completely tax-free interest and maturity benefits under the Exempt-Exempt-Exempt (EEE) model. Backed by the government, PPF ensures stable and risk-free growth, making it a reliable long-term investment, even without tax deductions.
Investors can access funds through partial withdrawals from the 7th year or avail of a loan facility from the 3rd year, offering financial flexibility.
Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana is another instrument that parents of a girl child can consider even if they don’t claim any tax deduction. SSY provide guaranteed returns and offers interest rates higher than what banks are offering. Sukanya Samriddhi Yojana is also an unmatched instrument that parents of the girl child can consider, with a guaranteed return of 8.2%.
Why you should keep your SSY account active
With an interest rate significantly higher than bank FDs, SSY provides one of the most profitable and secure savings avenues for parents planning for their daughter’s future.
The accumulated amount, including interest, is completely tax-free at maturity, making it an unmatched investment option for education or marriage expenses.
Funds can be withdrawn only after the girl turns 18, promoting disciplined financial planning.
National Pension System (NPS)
National Pension System (NPS) is a defined contribution pension. NPS is voluntary for subscription by an individual to make contributions to his/her Individual Pension Account during the working life to create a pension corpus from which regular income will be generated after retirement / working age.
Why you should keep your NPS account active
Compared to other investment instruments, NPS has one of the lowest expense ratios, ensuring higher net returns over time. Although the new tax regime eliminates deductions, 60% of the NPS corpus is tax-free at withdrawal, making it a cost-effective retirement tool. Even without tax benefits, NPS offers exposure to equity and debt funds, helping investors build a larger retirement corpus.
PPF & SSY provide secure, tax-free returns with government backing, making them excellent long-term savings options. NPS offers the potential for market-linked growth, which can enhance retirement savings, even if tax deductions are unavailable.
While their tax advantages may fade, their long-term financial rewards make them viable investments for disciplined investors. Investors should carefully consider whether to continue contributions to these schemes based on their long-term financial objectives, liquidity requirements, and penalty consequences.
