Switching to new tax regime removes PPF deductions

Under India's new tax regime, taxpayers lose the ability to claim deductions for investments made under Section 80C. This means investments in schemes like the Public Provident Fund (PPF) do not provide tax benefits. These benefits are only available under the old tax system. For individuals with a maturing PPF account, it may be more beneficial to withdraw the funds and switch to the new regime. The current interest rate for PPF is 7.1%, which may not compare favorably to other investment options with better returns and liquidity. However, withdrawals from PPF will not be taxed, making it an appealing option. There is speculation about a possible change in the status of PPF interest from Exempt-Exempt-Exempt (EEE) to Exempt-Exempt (EE), which could result in future taxes on withdrawal. Withdrawing now could protect against potential tax implications later. For those who have extended their PPF accounts or have time until maturity, it might be wise to make only the minimum contribution of Rs 500. They can then invest any extra money in other debt instruments that could provide better returns. If five years have passed since opening the PPF account, individuals might also consider withdrawing up to 50% of their balance. The new tax regime includes specific deductions, such as interest on housing loans and employer contributions to the National Pension Scheme. However, it does not offer as many deductions as the old system, which allows for significant tax benefits through investments and insurance premiums. Taxpayers can choose based on their financial goals. Those valuing safety and tax-free returns may prefer to keep their PPF, while others seeking higher returns may find withdrawing and reallocating funds more advantageous.