New tax regime vs ELSS: Should you still invest in tax-saving funds?

The Indian taxpayer is often left struggling with saving tax and creating a long-term wealth strategy. With the new tax regime replacing the old one, most wonder and debate the usefulness of ELSS (Equity Linked Savings Scheme). In this blog, we will analyse the new tax regime vs ELSS debate and try to find an answer to the question, “Does ELSS tax saving still make sense in 2026?” 

We will juxtapose the old vs new tax regime, discuss ELSS benefits, and see if Section 80C investment in tax saving funds 2026 tax saving funds is a wise decision. We hope to help you clear out some of the confusion surrounding this topic and help you choose the best strategy for your financial goals.

Old vs New Tax Regime

Understanding the new tax regime vs ELSS debate involves first understanding the different income tax systems in India. The old vs new tax regime debate is one of the most talked about topics since the new one was introduced in the Budget 2020. The new tax system became the default option from FY 2023-24.

Talk about the benefits of the old tax regime first and then mention the benefits of the new tax regime.

When it comes to the old tax regime, there are different ways to reduce taxable income and get tax exemptions, which include the section 80C investment. This section allows you to get tax deductions of up to ₹1.5 lakh when you invest in the top-performing ELSS, PPF, NSC, and life insurance premiums. 

The tax slabs have different percentages for income between the ranges, and there is a 5% tax for those earning between ₹2.5 lakh and ₹5 lakh, and for those earning ₹10 lakh or more, they pay a tax of 30% additional surcharge and cess.

On the other hand, in the new tax regime, you get to experience lower tax percentages, tax exemptions, and other deductions in the form of HRA, tax and travel allowances, and more, but you are able to pay lesser taxes. Instead, there are more benefits when it comes to the new tax regime. 

In fact, if you earn up to ₹3 lakh, you will have to pay ₹0 taxes and if you earn up to ₹6 lakh, there will be a 5% tax. The range goes all the way up to earning ₹15 lakh, as there is a 30% tax for those earning that much, which allows you to pay a lot less tax. This new regime does not give you the section 80C investment and benefits mentioned in the old tax regime. 

The tax saving funds for 2026 focus on simplification. When it comes to deductions, the new regime for the FY 2025-26 (2026 filing) increases the standard deduction to ₹75,000 and family pension deductions to ₹25,000. This is great for people with simple income streams. But, does this mean we have to bid farewell to ELSS tax savings? Not at all here’s why.

 

 

What is ELSS? What Are The Advantages?

ELSS stands for Equity Linked Savings Scheme. It is a specific type of mutual fund. ELSS lets you claim section 80C investment deductions because it is a tax-saving instrument. ELSS funds invest a minimum of 80% of their total assets in equities and thus also allow you to earn good returns in addition to saving taxes. When compared to all tax-saving funds 2026 alternatives, ELSS is also the most liquid, with just a 3-year lock-in period.

There are numerous ELSS advantages.

- Tax Deduction: You can claim up to ₹1.5 lakh deduction in the old regime and thus, directly lower your taxable income.

- Wealth Creation: ELSS is an equity mutual fund. For the long-term, it has provided an annual return of 12% to 15%, which is significantly better than any fixed-income instruments like PPF, which is only around 7-8%.

- Risk is Spread: Professional managers keep their risk in check by spreading their investment in different sectors.

- Manageable SIPs: With Systematic Investment Plans, you can keep investing regardless of the market conditions.

- Taxable Gains: Gains after the lock-in period are taxed. Long-term capital gains (LTCG) over ₹1 lakh are taxed at 10% (no indexation).

In the case of the new tax regime vs ELSS, even in the absence of tax saving, ELSS can be incredibly effective in wealth creation for young investors who are willing to take risks.

New Tax Regime vs ELSS: The Differences

When it comes to the new tax regime vs ELSS, the main discussion point is whether tax deductions in the old system have more value than the lower tax rates in the new system. Let's take a closer look.

Tax Savings Possibilities  

Under the old regime, tax savings of investing ₹1.5 lakh in ELSS through section 80C investment would result in direct savings of up to ₹46,800 (30% slab, plus cess) in tax outgo. Under the new regime, tax slabs become more favourable. For a ₹10 lakh annual income, tax liability with the old regime (with full 80C deduction) would be approximately ₹62,400, whereas with the new regime, it's almost ₹54,600. Without any further investments, this model saves ₹7,800 under the new regime.  

To save more tax with ELSS tax saving, the old regimes may be advantageous if the annual income is more than ₹15 lakh. For annual income up to ₹15-16 lakh, it is beneficial to have the new regime without exemptions/deductions. If annual income is more than ₹16 lakh, the old regime is beneficial with maximum tax saving exemptions.

Investment Returns & Lock-In

Investing in ELSS funds isn't just a way to get tax savings; it's a means to get your money working for you. An example is tax saving funds 2026, where investors get the benefit of the anticipated recovery in the markets after the 2024 volatility. ELSS funds like Mirae Asset Tax Saver & Axis ELSS Tax Saver have shown resilience. The three-year lock-in is a way for you to practice disciplined investing in contrast to the new regime of tax savings, where you will be tempted to spend the “saved” taxes.

In the old vs new tax regime, if you choose the new tax regime, you can still invest in ELSS-equity type funds, which is a perplexing opportunity. The ELSS benefits also provide the benefit of being forced to save, along with the exposure to equity, which is a powerful means of wealth creation. For example, investing ₹1.5 lakh every year for 10 years at a 12% return will yield more than ₹26 lakh.

Risk and Suitability

The new regime is more suited for salaried individuals with fewer deductions, such as those without a home loan, medical insurance, and so on. For others like self-employed and high earners, section 80C investment in ELSS is a good option. The primary risk in ELSS is the equity markets and market downturns, where equity markets can drop by 20-30% during a bear market. However, in the majority of cases, history has shown that there are positive returns after 3 years, regardless of this risk.

By 2026, India's GDP is expected to grow between 7%-8%. This growth is expected to lead to growth in equities, including ELSS funds. They are expected to grow regardless of which government is in power.

 

 

How To Invest In New Tax Regimes

The question of investing in tax-saving funds in 2026 is based on your financial goals, income, and risk appetite.

ELSS Makes Sense In These Scenarios

1. Intermittent Switching of Tax Regimes: When filing your tax return, you have the option to change your tax regime every year. If you are investing in ELSS, and your deductions are higher than the breakeven point, you should consider the old regime.

2. Wealth Creation: The fund can grow due to the other tax-saving funds, and the ELSS tax-saving fund can be used to grow your fund. For young professionals in 2026, starting SIPs in ELSS can create funds for retirement or other goals.

3. Portfolio Diversification: If the portfolio lacks equity, ELSS would be tax-efficient (old regime) or just tax-efficient (new regime).

4. Investment in ELSS for High Income Groups: When your income is in the 30% tax bracket, the deduction is more valuable, and it is more beneficial to be on the old regime and under section 80C investment.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.