Can a 30% flat deduction bring taxpayers back to long-term investments, insurance?

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Subscribe to enjoy similar stories. When the new income tax regime was introduced in 2021, people were taken aback by the lack of most deductions. However, the simplified tax regime made a lot of sense.

Gone was the hassle of tracking investments, loans, or charitable contributions. Instead, taxpayers pooled their income, calculated tax liabilities, and filed returns with ease, embracing a system designed to simplify taxation. Five years on, emerging trends raise concerns about its impact on essential financial habits.

One of the most concerning observations is the decline in life insurance penetration. The Insurance Regulatory and Development Authority of India (IRDAI) annual report released last month, indicated that insurance penetration declined for second consecutive fiscal year. Also read: Budget 2025 | Tax breaks to spur spending, boost economy? Traditionally, tax benefits associated with insurance premiums have been a reason why people purchased life insurance policies.

Without these incentives, many are no longer prioritising life insurance and are lacking that important protection. The trend isn’t confined to life insurance; even equity-linked savings schemes (ELSS) are witnessing a decline, despite equity markets delivering stellar returns in recent years. Although overall inflows into equity funds have risen, last year also saw record-high SIP outflows.

This suggests that investors are steering away from long-term commitments, bypassing the discipline ELSS offers through its mandatory lock-in period. Not just equity, in the absence of tax deductions, interest in other essential long-term savings also seems to be declining. Further compounding the issue is the declining interest in small savings schemes and