Saving tax is something all of us want, and planning for retirement is just as important. In India, three popular options that help with both future planning and tax benefits under Section 80C are the Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS) and the National Pension System (NPS). These three options suit different kinds of investors because they vary in risk, returns and tax advantages.
If you are trying to choose between PPF, ELSS and NPS, knowing the basics of each option will make it easier to see which one fits your goals.
Equity-Linked Saving Schemes (ELSS)
ELSS are mutual funds that invest predominantly in equities and qualify for tax deductions under Section 80C, allowing you to save up to Rs 1.5 lakh a year. They also have the shortest lock-in period among 80C options of just three years. This makes ELSS attractive for investors who want both tax savings and the possibility of higher returns, though the investment comes with market risks.
Tax Benefits
Gains above Rs 1.25 lakh are taxed at 12.5% as long-term capital gains (LTCG). LTCG applies to profits earned from selling capital assets such as shares or property after holding them for more than 24 months.
Returns
ELSS has historically delivered strong returns, with top-performing funds averaging around 12% to 15% annually.
Public Provident Fund (PPF)
PPF is one of India’s most reliable savings options. It is backed by the government and offers steady returns. A person must invest at least Rs 500 a year to keep a PPF account active, and the maximum deposit allowed in a year is Rs 1.5 lakh.
But the scheme has limited liquidity. It comes with a 15-year lock-in period. While partial withdrawals are allowed from the sixth year onwards, you can access the full corpus only after the account matures at 15 years. Also, the returns may not always keep up with inflation.
Tax Benefits
PPF is eligible for tax deductions up to Rs 1.5 lakh in a fiscal. A major advantage of PPF is its EEE tax status (Exempt-Exempt-Exempt). This means contributions qualify for tax benefits under Section 80C, and both the interest earned and the final maturity amount are also fully tax-free.
Returns
The government announces the PPF interest rate every year, and it generally falls between 7% and 8% per annum. The current interest rate is 7.1%.
National Pension System (NPS)
NPS is a government-backed retirement plan where people invest during their working years to receive a pension after retirement. It offers two types of accounts: Tier I, which is mandatory and remains locked in until retirement, and Tier II, which is voluntary and has no lock-in period. On retirement, a person can withdraw up to 60% of their accumulated corpus tax-free, while the remaining 40% must be used to buy an annuity that provides regular pension income.
Tax Benefits
NPS investments offers a tax deduction of Rs 1.5 lakh under Section 80C and an additional deduction of Rs 50,000 under Section 80CCD (1B).
Returns
NPS has delivered moderate and steady returns over time, averaging around 8% to 10% annually over the past decade.
Which One Saves More Tax And Makes More Money
ELSS is equity-focused, which means it carries higher risk but also offers the potential for higher returns, helping investors build more wealth in the long run.
If you prefer a safe, government-backed option with tax-free growth and do not need easy access to your money, PPF is a suitable choice.
NPS spreads your investment across different asset classes, resulting in lower risk and more stability, though its returns are usually moderate over time.
The right choice depends on your goals. Consider how much risk you can take, how long you want to stay invested and how much you can invest.
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