Section 80C gives you a ₹1.5 lakh deduction against taxable income. The question is not whether to use it — almost everyone should — but which instrument best fits your goals. NPS, PPF, and ELSS are the three most commonly chosen options, each with a distinct risk-return-liquidity profile.
Quick comparison
| Feature | NPS | PPF | ELSS | |---|---|---|---| | Lock-in | Till 60 (partial exit rules apply) | 15 years | 3 years | | Returns | Market-linked (8-12% historical) | 7.1% (govt declared) | Market-linked (10-14% historical) | | Tax on maturity | 60% tax-free, 40% must annuitise | Fully tax-free | LTCG at 12.5% above ₹1.25L | | Additional deduction | ₹50,000 under 80CCD(1B) | None | None | | Risk | Medium (equity + debt mix) | None | High (pure equity) |
When NPS wins
NPS is the only instrument with an additional ₹50,000 deduction under Section 80CCD(1B) — over and above the 80C limit. For someone in the 30% bracket, this saves ₹15,000 in additional tax. NPS also has very low fund management charges (0.01-0.09%) making it among the cheapest long-term investment vehicles available.
The catch: 40% of the corpus at retirement must be used to buy an annuity, which typically yields 5-6% and is fully taxable. NPS works best for disciplined retirement investors who are comfortable with partial illiquidity.
When PPF wins
PPF offers the rare EEE (Exempt-Exempt-Exempt) tax status — contribution, interest, and maturity are all tax-free. At 7.1% tax-free, the pre-tax equivalent for a 30% bracket investor is approximately 10.1%. The 15-year lock-in is mitigated by partial withdrawal rules (after year 7) and loan facility (from year 3).
PPF is ideal for conservative investors, retirees building a debt allocation, or anyone who values capital protection above return maximisation.
When ELSS wins
ELSS funds have the shortest lock-in (3 years) and the highest return potential. Over 10-15 year periods, well-selected ELSS funds have delivered 12-14% CAGR. The tax on maturity (12.5% LTCG above ₹1.25 lakh) is manageable if you spread redemptions across years.
ELSS is ideal for investors under 45 with a high risk tolerance and long time horizon who want equity exposure within a tax-saving wrapper.
The optimal combination
For most salaried investors in the 30% bracket: use ELSS for ₹1.5 lakh 80C, and add NPS for the extra ₹50,000 80CCD(1B) deduction. Continue PPF contributions if you already have an account (the 15-year compounding is worth protecting) but do not start a fresh PPF account if you have no existing balance.