The nationwide lockdown over the COVID-19 pandemic shouldn’t ideally distract you from the fact that we are in April that also marks the beginning of the new Financial Year2020-21. In fact, you should utilise this time to plan your tax-saving measures for the current financial year. The first thing you need to finalise is the tax system you should follow: the old one with higher slab rates but multiple tax deduction benefits or the new one with lower slab rates but no tax-deduction benefits. You’ll be well-advised to make your choice after comparing your tax outgo under both the systems factoring in all your tax-saving measures.

The new tax system doesn’t allow tax benefits under Section 80C, so you have to strategise your investments very smartly. The new system shouldn’t be seen as a reason not to invest just because there are no tax incentives attached to them. In fact, the new system allows you to invest freely as per your financial goals and risk appetite without worrying about tax-saving goals.

Here a few key things taxpayers joining the new tax system should keep in mind while investing.

Prioritise your financial goals
Your investment decisions should be guided by your financial goals, risk appetite and liquidity needs first and tax-saving compunctions last. Even as you opt for the new regime, continue to invest towards high-priority goals. You can invest for other financial goals too if you have the required capital, but the primary focus should be your most crucial financial goals like raising the down payment fund for a house, raising a fund for your children’s education or building an adequate retirement fund.

Invest in tax-efficient instruments
Buy investments that provide high post-tax returns. For example, PPF offers you returns of 7.1% per annum completely tax-free whereas an 8% FD may offer you only 5.6% if you’re in the 30% slab. PPF is an EEE instrument, meaning the sum invested, returns earned and maturity withdrawal are all tax-free. Similarly, long-term capital gains from investments in equity instruments are taxed at 10%, which may be less than your actual slab rate, while LTCG from debt mutual funds are taxed at 20.6% with indexation benefit.

Diversify and invest in instalments
When you invest in the new financial year, you must take measures to minimise investment risks to bag desired returns. This balance can be struck by diversifying your investments across various asset classes. For example, equity investments are currently highly volatile, FDs and small savings schemes are offering a low return; but gold had seen great appreciation in the last year. When the markets revive, equity and other asset classes can start giving you higher returns again and gold prices may flatline. So, aim to invest in different asset classes keeping in mind your financial goals, liquidity requirements and risk appetite. Also, aim to invest in instalments (like SIPs) to better manage your liquidity. In fact, you might be able to bag more mutual fund units in the current market through an SIP at discounted rates which can unlock high returns when redeemed later.

Invest in the name of your parents
Invest in the name of your senior citizen parents provided they fall under a lower tax bracket than yours. Most banks allow preferential rates for senior citizen depositors. Moreover, gifts made to your parents are neither taxable in your hand or your parent’s hand under the I-T Act, nor clubbing of income applies to the income earned from such gifts which you give to your parents.