The Government of India introduced a revamped tax regime in the Union Budget 2023–2024, modifying income tax slabs to simplify compliance and incentivize savings via new mechanisms. These changes directly impact an individual’s investment strategies, including mutual funds and Systematic Investment Plans (SIPs). Investors using services like Bajaj Mutual Fund must evaluate how the updated tax regime influences their future portfolio planning, especially considering tax benefits under different investment schemes.
Understanding the New Tax Regime
The new tax regime introduces revised slab rates and eliminates deductions available under the old tax system. Here are the key details of the new tax regime slabs in FY 2023-24:
– Income up to ₹3,00,000 – Nil tax rate
– Income from ₹3,00,001 to ₹6,00,000 – 5%
– Income from ₹6,00,001 to ₹9,00,000 – 10%
– Income from ₹9,00,001 to ₹12,00,000 – 15%
– Income from ₹12,00,001 to ₹15,00,000 – 20%
– Income above ₹15,00,000 – 30%
This streamlined approach replaces the varying exemptions and deductions available under the old regime, such as Section 80C (₹1,50,000 deductions for equity-linked savings schemes), Section 80D (medical insurance), and Section 24(b) (home loan interest), encouraging investors to adopt simpler strategies without relying on tax benefits for investment planning.
Mutual Funds and SIPs: A Tax Perspective
Mutual funds and SIPs are popular investment instruments for wealth creation, offering structures that suit diverse risk appetites and financial goals. These include equity mutual funds, debt mutual funds, hybrid schemes, and more—many of which are offered under Bajaj Mutual Fund.
Under the old tax regime, platforms like Bajaj Mutual Fund had specific tax-efficient schemes. For instance:
- Equity Mutual Funds
Long-term capital gains (LTCG) from equity mutual funds exceeding ₹1,00,000 were taxed at 10%, beneficial for high-income individuals. Short-term capital gains were taxed at 15%, regardless of the tax slab. - Debt Mutual Funds
LTCG realized on debt fund investments held longer than 36 months were taxed at 20% with indexation benefits. Short-term capital gains were taxed according to the investor’s income tax slab.
Under the new tax regime, these mutual fund gains (short-term and long-term) remain taxable, but without deduction benefits. For investors previously availing of tax-saving schemes, such as ELSS under Section 80C, the new tax regime removes the incentive of a direct reduction in taxable income, compelling them to rethink the attractiveness of traditional tax-saving mutual funds.
How This Affects SIP Strategy
Systematic Investment Plans (SIPs) are ideal for staggered investments, particularly through Bajaj Mutual Fund, which offers diverse SIP options for wealth creation over time. The new tax slabs indirectly influence SIP strategies by impacting disposable income and the taxes levied on capital gains generated when redeeming units—a notable change under the new tax regime.
For example:
– With a disposable income of ₹15,00,000 per annum
An individual under the new tax regime pays ₹1,50,000 in taxes (as per the 20% tax slab for this category).
– Assuming they invest ₹10,000 monthly in an equity mutual fund’s SIP
Via Bajaj Mutual Fund for five years, their total investment stands at ₹6,00,000. With an annual return of 12%, they would accumulate approximately ₹8,16,000. LTCG tax applies if annual gains exceed ₹1,00,000—potentially creating a liability of ₹2,160 (10% of ₹2,16,000 in capital gains exceeding ₹1,00,000).
Individuals in lower income slabs (up to ₹6,00,000) pay lower taxes or none, enabling them to allocate higher amounts toward SIP investments or mutual fund portfolios without substantial tax liability.
Calculations: Comparing Scenarios
For higher-slab beneficiaries, tax obligations are steeper under the new regime, potentially reducing investment affordability.
Scenario 1: ₹9,00,000 Annual Income
– Tax under new regime
₹60,000 (10%)
– Disposable income after tax
₹8,40,000
– Monthly SIP investment budget
Aligns proportionately based on reduced disposable income.
Scenario 2: ₹12,00,000 Annual Income
– Tax under new regime
₹1,80,000 (15%)
– Disposable income after tax
₹10,20,000
Investors must re-strategize SIP allocations, as individuals with higher taxable incomes might prioritize liquid assets or low-tax schemes to preserve post-expense liquidity.
What Options Do Investors Have?
The shift toward the new tax regime impacts traditional tax-saving investments like ELSS mutual funds due to the removal of Section 80C benefits. Debt mutual funds are also subject to taxation without indexation benefits if redeemed post April 2023. SIP investors might explore alternatives such as equity investments, ULIPs (Unit Linked Insurance Plans), or NPS (National Pension Schemes), but these changes hinge on disposable income and tax obligations.
While Bajaj Mutual Fund continues to offer reliable, diversified SIP models, high-income individuals under the new regime may need to carefully evaluate their long-term expectations for capital growth versus immediate liquidity.
Final Thoughts
The new tax regime directly influences mutual funds and SIP strategies, removing deductions but simplifying tax calculations. Investors engaging platforms like Bajaj Mutual Fund must factor in cash flows, tax on capital gains, investment tenure, and risk appetite to adapt strategies accordingly.
Summary
The revised tax slabs under the new tax regime have altered individual investment strategies, especially for mutual funds and SIPs via platforms like Bajaj Mutual Fund. By removing deductions under sections like 80C and 80D, the government encourages simpler tax compliance. This shift affects equity and debt mutual fund gains, as deductions are no longer available.
For example, taxpayers in higher slabs face steeper obligations, which may influence disposable incomes. If an investor earning ₹15,00,000 per annum allocates ₹10,000 monthly toward a Bajaj Mutual Fund SIP for five years (accumulating ₹6,00,000 at 12% annual returns), their ₹8,16,000 earnings would trigger a tax liability of ₹2,160 for LTCG above ₹1,00,000.
Ultimately, the new tax regime calls for recalibration of strategies, with individuals needing to evaluate scenarios carefully to ensure their mutual fund or SIP investments align with future financial goals.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors must thoroughly evaluate pros, cons, and risks associated with trading or investing in the Indian financial market before making decisions.