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ELSS or PPF or NSC? Which 80C Tax Saving Option You Should Choose

Team BankBazaar


We are in the last leg of the tax saving season. With only a few days left to make your tax saving moves, choosing the perfect investment seems daunting. But there is nothing to worry about as we take a look at three popular tax saving options under Section 80C.

Tax saving as a process should be done not only to reduce your tax liability but should also simultaneously help in wealth creation. While Public Provident Fund (PPF), Equity-linked Saving Scheme (ELSS) and National Saving Certificate (NSC) all qualify for tax deductions under 80C, their returns vary greatly.

ELSS

As an investment vehicle, ELSS has gained popularity among investors for tax saving as well wealth creation. Amongst the options available under Section 80C, ELSS funds come with the lowest lock-in period of 3 years, and also provide good returns. Investment in ELSS can help you fetch tax deductions up to Rs. 1.5 lakh. Meant for people with a high risk appetite, these funds promise returns good enough to beat inflation. However, your returns exceeding Rs. 1 lakh from all equity investments are taxable at 10% without indexation benefit. As compared to PPF and NSC, the long-term returns are higher at approximately 12-15% and so is the risk exposure. You can either take the SIP route or make lump sum investment in ELSS. Withdrawals is not allowed before the end of the 3-year lock-in period, and there are no associated exit loads with this instrument.

PPF

This is a traditional investment instrument that offers assured returns and is a risk-free option. In case you invest in PPF, your money would be locked-in for 15 years, but unlike ELSS, you are allowed 50% withdrawals after 5 years of lock-in period. The current interest rate for PPF is 8%, which is announced by the government every year. You can either make a lump-sum deposit or invest in 12 instalments in your PPF account in a year. You can avail tax deduction for amount invested up to Rs. 1.5 lakh under Section 80C and the returns earned are tax free.

NSC

Like PPF, this is also a government-backed investment instrument that offers guaranteed returns at 8% annually. Like ELSS and PPF, investment in NSC can help you avail tax benefits under Section 80C for investment up to Rs. 1.5 lakh. You can start investing in this scheme with amount as small as Rs. 100 initially and later on increase it as per the amount you can afford. The lock-in period for this scheme is 5 years and 10 years depending on the issue. Not recommended as a good inflation beating instrument, you will have to shell out tax on the interest earned. Partial withdrawals or exiting the instrument in not allowed but in exceptional cases like demise of the investor, the nominee can inherit returns.

While ELSS is a better return providing instrument than PPF and NSC in the Section 80C club, you should take a call on choosing one after assessing your risk profile and financial goals.