There are many reasons for senior people's fondness for small savings schemes, such as the decent return, low risk, and tax benefit under Section 80C of the Income-tax Act, 1961, in the old tax regime. However, many seniors are now migrating to the new tax regime. Does it make the small savings scheme unattractive for them? What should senior people do if they are existing investors in the small savings scheme? Let's find out the answers.
Should Seniors Stop Investing In Small Savings Schemes After Switching To A New Tax Regime?
Small savings schemes are popular among senior citizens for their attractive return, low risk, and tax benefits under the old tax regime, u/s 80C. Should they stop investing in these schemes if they switch to the new tax regime?
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Beware Of The Minimum Contribution Requirement
If you do not want to invest in the small savings scheme, but maintain the investments already made, then instead of stopping the entire investment, you may make the necessary contribution in the schemes to avoid penalties and avoid the account from becoming inactive. For example, if you invest in PPF, then it is mandatory to invest at least Rs 500 once a year, to avoid a penalty which is Rs 50 each year. In NPS, you need to invest at least Rs 1000 every year to keep the account active. If the account becomes dormant, you need to pay a reactivation/revival charge of Rs 100 and deposit the minimum contribution as well.
Do You Have An Alternative Low-Risk Investment In Mind To Switch Your Investment?
Small savings schemes offer attractive returns, and stopping investments without choosing an alternative option can be adverse for your investment portfolio. So, it's important to choose the alternative investment products that match your risk appetite and return expectation to invest your money before stopping investment in the small savings scheme.
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What Should You Do?
If you were investing in a small savings scheme only to save taxes under Section 80C in the old tax regime, you may realign your investment portfolio with your financial goals. Continue investing in schemes which are essential for achieving your goals and hold the remaining small savings schemes till their maturity while fulfilling the minimum investment criteria every year to avoid penalty and dormancy. If you decide to reduce the size of regular investment in the small savings scheme, then it is important to shift that excess money to other suitable investment products available in the market, such as mutual funds, FDs, etc.
The author is an independent financial journalist
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