A reader asks, “My question is about the significance of ELSS funds in the future due to the new tax regime. Can we continue investing in these funds?”
Budget 2023 has made the new tax regime the default scheme with an option to continue using the old scheme. The new regime has significant tax cuts with no tax on income of up to Rs 7 lakhs (net taxable).
To appreciate the gravity of these changes, let us consider a relevant example using the New Tax Regime vs Old Tax Regime Calculator.
Consider an individual earning 15L per year.
- The new tax regime (NTR) will result in a tax of Rs. 1,45,600 from 1st April 2023. Before that, the NTR tax is Rs. 1,95,000.
- Now just to ensure that the old tax regime (OTR) tax is equal to Rs. 1,45,600, deductions of Rs. 3,58,333 is necessary for deductions.
- This means that 80C, 80D and Rs. 50,000 NPS investment alone are not enough for a taxpayer to choose the OTR. A home loan interest and/or significant HRA is crucial.
So what does this have to do with ELSS mutual funds?
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Suppose you have a home loan, and you wish to deduct up to Rs. 2 lakhs of the interest component from your taxable income. You will pay 34% more tax in OTR than in the NTR (from 1st April 2023!)!
Assuming you are not eligible for HRA (very few taxpayers can avail of tax deductions under both home loan interest and HRA simultaneously), you will need an additional Rs. 1,58,333 in deductions just to lower OTR tax to NTR tax from 1s April 2023!
It makes no sense to invest that much among 80C and 80CCD(1B) products just to pay less tax! It is high time we ask, what is our goal here? To build enough wealth in suitable products for our future needs or to save tax? Naturally both! The point is, both can be done easily without buying unnecessary products in the new tax regime! So why chase after tax-saving products? Also see: Budget 2023 wants us to shift from tax-saving to wealth-creation mode – are we ready?
Therefore we recommend the following wrt ELSS mutual funds. Thankfully ELSS mutual funds have the shortest lock-in, and there is no investment commitment!
- Opt for the new tax regime.
- Stop all SIPs in ELSS mutual funds.
- Continue your existing investments in ELSS until you are satisfied with their performance, or you will have to rebalance from equity to debt.
If you have not yet done so, list your goals and decide the suitable asset allocation and how much you need to invest, along with a risk reduction strategy.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)