What are the differences between ELSS, PPF, NSC, and Bank FDs regarding tax-saving benefits under Section 80C?
The Income Tax Act allows individuals to save taxes by investing in specific financial instruments under Section 80C. You can save up to ₹1.5 lakh every year through options like the Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), and Fixed Deposit (FD). Here’s a breakdown of three popular choices for saving taxes: ELSS, PPF, and Tax-Saving FDs.
What are ELSS, PPF, and FD?
- ELSS (Equity Linked Savings Scheme) is a type of mutual fund that helps you save taxes.Since it is market-linked, it carries some risk but can also provide higher returns. You can invest with as little as ₹500, and the money remains locked in for three years.
- PPF (Public Provident Fund) is a government-backed savings scheme with zero risk. You can invest a minimum of ₹500 and enjoy tax-free interest. The money is locked for 15 years, but you can make partial withdrawals after 6 years.
- Tax-Saving Fixed Deposit (FD) is a safe investment where you deposit your money for five years and get guaranteed returns. You can invest as little as ₹100, but the interest is taxable.
Key Differences Between ELSS, PPF, and FD
| Feature | ELSS | PPF | NSC | Bank FDs |
| Lock-in Period | 3 years | 15 years | 5 years | Varies (usually 1 – 10 years) |
| Returns | 10% – 11% (market-linked) | 7.1% (01.04.20 – 31.03.25) |
7.7% (01-04-23 – 31-03-25) |
6-8.5% |
| Risk Level | Moderate to High (market-linked) |
Low | Safe | Safe |
| Premature Withdrawal | Not Allowed | Allowed after 6 years | Not Allowed | Not Allowed |
| Taxation | 12.5% on Long-Term Gains (LTCG) | Tax-free Interest | Taxable as per income slab |
Taxable as per income slab |
ELSS: High Returns, High Risk
An ELSS is the only mutual fund that qualifies for tax savings under Section 80C. It has a lock-in period of just 3 years, the shortest among tax-saving options. Historically, ELSS returns have been between 11% and 13%, but since it is market-linked, returns can vary. After the lock-in, you can stay invested or withdraw your money.
PPF: Safe and Steady
PPF offers guaranteed returns and is risk-free because the government backs it. It has a long lock-in period of 15 years, but you can make partial withdrawals after 6 years. The current interest rate is 7.1% (From 01.04.20 to 31.03.25) and the returns are tax-free. PPF is ideal for conservative investors looking for long-term security.
Tax-Saving FD: Stable, Low-Risk
Tax-saving FDs offer assured returns, but their interest is taxable. These deposits have a 5-year lock-in period and are low-risk. However, you cannot withdraw the money early; no loan facility is available against them.
Choosing Between ELSS and PPF
ELSS is better if you’re looking for higher returns and can tolerate some risk. It has a shorter lock-in period and the potential for high growth. However, if you prefer security and stable, tax-free returns, PPF might be more suitable.
In conclusion, both ELSS and PPF offer tax-saving benefits but cater to different types of investors. When choosing between them, consider your risk tolerance, investment horizon, and financial goals.
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