The power of tax-driven savings

Even though the shift to the simple new tax system seems to be a done deal, the impact on the individual saver can be seen in two very different ways: either lamenting the weakened savings incentives while acknowledging increased choice or celebrating higher take-home pay while downplaying the impact on saving behaviour. Both are wrong. They both miss the crucial point - tax incentives for savings aren't just about immediate financial benefits. They're about creating lasting behavioural change. Consider what really drives people to start investing. Despite living in a world where consumption is constantly pushed at us through advertising and social pressure, tax-saving investment schemes have served as a powerful counterforce. This is particularly true for retirement savings, where the National Pension System (NPS) offers superior returns and flexibility compared to the Employee Provident Fund (EPF). The upcoming budget should expand options for employees to shift a larger portion of their retirement savings from EPF to NPS, allowing more Indians to benefit from market-linked returns and professional fund management. Suggested read: NPS has been superior to EPF. Is it time to switch? The psychology behind tax-saving investments as gateway product