All three save tax only in the old regime. ELSS has the shortest lock-in (3 years) and the highest growth potential, but it is market-linked. PPF is government-backed, tax-free at every stage and pays 7.1% for October–December 2026, with a 15-year lock-in. NPS is for retirement: it adds a ₹50,000 deduction on top of the ₹1.5 lakh limit, and your employer's contribution is deductible even in the new regime.
Key Takeaways
- ELSS and PPF share the ₹1.5 lakh 80C limit (Section 123 under the Income-tax Act, 2025); NPS adds ₹50,000 more under 80CCD(1B).
- In the new tax regime none of them gives a deduction, except your employer's NPS contribution of up to 14% of basic pay plus DA.
- PPF suits money you want safe and tax-free; ELSS suits long-term growth; NPS suits retirement money you will not touch.
- Since December 2025, most private-sector NPS subscribers can take up to 80% of the corpus as a lump sum at exit instead of 60%.
ELSS: the equity option with the shortest lock-in
An Equity Linked Savings Scheme is a mutual fund that invests at least 80% in shares and qualifies for the 80C deduction. Each investment is locked for 3 years from its date, so with a monthly SIP every instalment has its own 3-year clock.
- Returns: market-linked. Over long periods equity has beaten inflation, but ELSS funds can fall 20–30% in a bad year and returns are not guaranteed.
- Tax on gains: gains are long-term after the lock-in. Long-term capital gains on equity funds above ₹1.25 lakh a year are taxed at 12.5%. Spreading redemptions over years keeps more of the gain in the exempt band.
- After 3 years: the money is free to withdraw, though you can stay invested as long as you like.
PPF: the safe, tax-free option
The Public Provident Fund is a government savings scheme you can open at a post office or bank. The government sets its interest rate every quarter; for October–December 2026 it is 7.1% a year, where it has stayed since April 2020.
- Deposits: ₹500 to ₹1.5 lakh in a financial year. Interest is calculated monthly on the lowest balance between the 5th and the last day of the month, so deposit before the 5th.
- Lock-in: 15 full financial years, then extendable in blocks of 5 years, with or without fresh deposits.
- Partial withdrawal: one a year from the 7th financial year, capped at 50% of an earlier year-end balance.
- Premature closure: allowed after 5 years only for serious illness in the family, higher education or becoming an NRI, and interest is then cut by 1% for the whole period.
- Tax: deposit (old regime), interest and maturity are all tax-free, often called EEE.
NPS: the retirement option with an extra deduction
The National Pension System, regulated by PFRDA, invests your contributions in equity, corporate bonds and government securities in a mix you choose (Active Choice) or that shifts with age (Auto Choice). Tier I is the pension account with the tax benefits; Tier II is an optional, withdrawable account without them.
- Deductions (old regime): your own contribution counts within the ₹1.5 lakh 80C limit under 80CCD(1), and up to ₹50,000 more is deductible under 80CCD(1B).
- Employer contribution: under 80CCD(2), up to 14% of basic pay plus DA is deductible in the new regime (10% in the old regime for private-sector employees).
- Exit rules after the December 2025 amendment: non-government subscribers can withdraw up to 80% as a lump sum and must use at least 20% to buy an annuity; small corpuses of up to ₹8 lakh can be withdrawn in full. Government employees keep the 60:40 split. Normal exit is at 60, or after 15 years in the scheme.
- Tax at exit: 60% of the corpus withdrawn as a lump sum is tax-free. Whether the extra 20% now allowed is also tax-free depends on the tax law catching up; until it does, treat it as taxable at your slab. The annuity income is taxed as income each year.
NPS vs PPF vs ELSS side by side
| Feature | ELSS | PPF | NPS (Tier I) |
|---|---|---|---|
| What sets returns | Stock market | Government, revised quarterly (7.1% for Oct–Dec 2026) | Market; mix of equity and bonds you choose |
| Lock-in | 3 years per investment | 15 years | Until 60, or 15 years in the scheme |
| Access before lock-in ends | None | Partial withdrawal from year 7 | Partial withdrawal for specific needs, with limits |
| Deduction (old regime) | Within ₹1.5 lakh | Within ₹1.5 lakh | Within ₹1.5 lakh plus ₹50,000 extra |
| Deduction (new regime) | None | None | Employer share only, up to 14% of basic plus DA |
| Tax on growth and exit | 12.5% on long-term gains above ₹1.25 lakh a year | Fully tax-free | 60% lump sum tax-free; annuity taxed as income |
| Risk | High in the short term | Very low (government-backed) | Moderate; depends on equity share |
| Best for | Long-term growth with a short lock-in | Safe, tax-free long-term savings | Retirement money you will not touch |
First, check your tax regime
Since 2023 the new regime has been the default, and from 2025 it makes salaries up to ₹12.75 lakh tax-free. In it, ELSS, PPF and your own NPS contributions save no tax at all. They can still be good investments, but choose them for their features, not the deduction.
The deductions matter only if the old regime is cheaper for you, which usually needs several lakh of deductions such as home loan interest, HRA and 80C together. Run your numbers using our new vs old tax regime guide, and see how the section numbers changed in April 2026 in our Income Tax Act 2025 explainer.
Which should you choose?
- Young salaried, old regime, comfortable with ups and downs: ELSS through a monthly SIP for most of the ₹1.5 lakh, since EPF often already fills part of it.
- You want certainty and tax-free money: PPF, deposited before 5 April each year to earn interest for the full year.
- In the 30% slab and saving for retirement: add ₹50,000 to NPS for the extra deduction, worth up to ₹15,600 a year including cess.
- In the new regime: ask your employer to route part of your salary into NPS under 80CCD(2); it is the one deduction left.
- Need the money within 5 years: none of the three; use a recurring deposit or a debt fund.
Many families combine them: PPF for the safe part, ELSS for growth and NPS for retirement. For a closer look at the most common pairs, read ELSS vs PPF and PPF vs NPS for retirement.
Worked example: ₹1.5 lakh a year for 15 years
Assume ₹1.5 lakh goes in each year for 15 years, a total of ₹22.5 lakh. PPF is assumed to stay at 7.1%; ELSS is shown at assumed long-term returns of 10% and 12%. These are illustrations, not predictions.
| Option | Value after 15 years | Tax on exit |
|---|---|---|
| PPF at 7.1% (deposit each April) | About ₹40.7 lakh | None |
| ELSS SIP of ₹12,500 a month at an assumed 10% | About ₹52.2 lakh | 12.5% on gains above ₹1.25 lakh in each year you redeem |
| ELSS SIP of ₹12,500 a month at an assumed 12% | About ₹63.1 lakh | 12.5% on gains above ₹1.25 lakh in each year you redeem |
The gap shows the price of safety: PPF gives a known, tax-free result, while ELSS may end higher or, after a market fall, lower. Separately, ₹50,000 a year in NPS, paid as about ₹4,170 a month for 25 years (₹12.5 lakh in all), would grow to about ₹55.7 lakh at an assumed 10%, of which at least 20% must buy a pension. Try your own numbers on our tax planning calculator and SIP calculator.
Frequently Asked Questions
Which is better for tax saving: NPS, PPF or ELSS?
It depends on your goal. ELSS offers growth with the shortest lock-in, PPF offers safety and fully tax-free returns, and NPS offers an extra ₹50,000 deduction for retirement savings. All three save tax only in the old regime.
Can I claim NPS, PPF and ELSS deductions in the new tax regime?
No. In the new regime only your employer's NPS contribution is deductible, up to 14% of basic pay plus DA. Your own ELSS, PPF and NPS contributions save no tax.
What is the PPF interest rate now?
7.1% a year for October–December 2026. The government reviews the rate every quarter, so it can change for future quarters.
Can I withdraw from my PPF account before 15 years?
Yes, partly. One partial withdrawal a year is allowed from the 7th financial year. Premature closure after 5 years is allowed only for serious illness, higher education or becoming an NRI, with a 1% interest cut.
How much of my NPS can I withdraw at 60?
Under the rules amended in December 2025, non-government subscribers can take up to 80% as a lump sum and use the rest for an annuity; small corpuses up to ₹8 lakh can be withdrawn fully. Government employees keep the 60:40 split.
Can I invest in ELSS through a monthly SIP?
Yes, often from ₹500 a month. Each instalment is locked for 3 years from its own date, so the last instalment of a year is free only 3 years after it was made.
Unsure how to split your tax-saving budget this year?
Hatlet Ventures helps salaried employees and business owners across Tamil Nadu (Tiruppur, Coimbatore, Chennai, Erode, Salem) check which regime suits them and divide savings between ELSS, PPF and NPS.
Get a Free Tax-Saving Consultation
Share your salary and current investments, and we will compare both regimes and suggest how to split your savings. Book a free 30-minute call.
Disclaimer: This article is for education only and is not investment, tax or legal advice. Figures and rules are stated as understood on the date shown and can change. Return figures are illustrative or historical, not guaranteed; past performance does not guarantee future results. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Insurance is the subject matter of solicitation. Hatlet Ventures is an AMFI-registered mutual fund distributor (ARN-345155), not a SEBI-registered investment adviser.
Sri Balaji is the founder of Hatlet Ventures in Tiruppur, Tamil Nadu. He is a NISM Certified Research Analyst, AMFI Registered Mutual Fund Distributor (ARN-345155), IRDAI Registered Insurance Agent (1911251001) and APMI Registered PMS Distributor (APRN09158). With 8+ years of experience, he has guided 500+ families across Tamil Nadu in SIP, mutual funds, insurance planning, and portfolio management. All content on this blog is reviewed for accuracy and updated regularly.