Good news, Interest on Sukanya Samriddhi Yojana is tax free, But there is a twist 

Have you ever realized that with the new tax rules, certain investment schemes don’t offer tax exemptions, but the interest you earn from them isn’t taxed? For instance, under the new tax framework, you won’t pay tax on the interest from schemes like Sukanya Samriddhi Yojana or Public Provident Fund (PPF). However, you can’t claim a deduction for investing in these under Section 80C.

Old regime perks

If you stick with the old tax regime, you can deduct up to Rs 1.5 lakh per year for investments in these schemes. On the flip side, the new regime doesn’t provide any tax exemption for these investments. SBI Research has pointed out in a report why the new tax system takes a different stance on taxing various savings or investments.

SBI’s explanation

According to the SBI report, the tax benefits on financial assets in the old system go against the ‘principles of equity and efficiency without boosting overall savings’. This prompted a need to reassess the consistency of tax incentives across different financial assets. The tax treatment for long-term financial instruments should differ from that of short- and medium-term ones, as they play a crucial role in fostering long-term financial growth for social security.

What’s the goal?

For example, those investing in Sukanya Samriddhi Yojana will still enjoy tax exemptions on the interest earned from this account under the new tax regime, and the maturity amount will also be tax-free. However, the investment itself won’t qualify for a tax deduction under Section 80C. This approach aims to keep promoting long-term savings.

Understanding the benefits

Nowadays, many people invest in these schemes primarily for immediate tax savings but struggle to keep up with them. The government wants to encourage longer-term investments. Without the immediate tax benefits, the focus shifts to sustaining those investments over time.

The new tax regime is a positive change

According to the report, the choice to set the new regime as the default is part of the government’s goal to streamline the tax process for individuals. In Budget 2025, they’ve made efforts to make this new regime appealing. They’ve adjusted the tax slabs, and now income up to Rs 12 lakh is tax-free. The report suggests that switching to the new regime is a wise decision for taxpayers, as it will give them more money to spend.