ELSS vs PPF vs NPS — the Rs 1.5 lakh deduction compared

Which law applies, as of this review

The Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026 and is the Act in force. The deduction everyone still calls "80C" is Section 123 of the new Act, and the ₹1.5 lakh aggregate cap continues unchanged; the eligible instruments are listed in a schedule to that section. The additional ₹50,000 deduction for a subscriber's own NPS contribution — Section 80CCD(1B) under the repealed Act — also continues. We have not been able to confirm the 2025 Act's section number for that second deduction against the bare Act, so this guide describes the provision instead of citing a number we cannot verify. The primary text is at incometaxindia.gov.in.

The three instruments in one paragraph

ELSS (Equity Linked Savings Scheme) is a mutual-fund category invested at least 80% in equity with a 3-year lock-in. PPF (Public Provident Fund) is a sovereign-guaranteed savings scheme with a 15-year lock-in and a rate reset quarterly by the Ministry of Finance — 7.1% for the July–September 2026 quarter, unchanged from the previous quarter (dea.gov.in). NPS Tier-I is a market-linked retirement vehicle managed by PFRDA-appointed Pension Fund Managers, locked until age 60.

Side-by-side

• Lock-in: ELSS 3y per instalment · PPF 15y · NPS until 60 (partial withdrawals allowed after 3y for specified purposes).
• Risk: ELSS — market · PPF — sovereign · NPS — market, with the equity share capped by the scheme preference you choose.
• Return: PPF is the only one of the three with a stated rate — 7.1% for July–September 2026, reset quarterly. ELSS and NPS returns are market outcomes. We publish no return figures for either: SEBI's advertising code bars ranked or projected performance claims outside standardised disclosures, and any long-run "category average" we quoted would be an unsourced number doing the work of a promise.
• Taxation at exit: ELSS — long-term capital gains at 12.5% on gains above ₹1.25 lakh per year; PPF — exempt; NPS — the lump-sum portion is exempt within the prescribed limit, the annuity is taxed as income when received.
• Deduction: ELSS and PPF share the ₹1.5 lakh aggregate cap under Section 123 of the Income-tax Act, 2025. NPS Tier-I adds a separate ₹50,000 deduction outside that cap. Both are old-regime features.

Suitability — our opinion, stated as such

Everything above this heading is either statute or a published rate. What follows is our editorial view and you should weigh it as one. If you are salaried with consistent income and a 20-year-plus horizon, NPS Tier-I plus ELSS uses the most deduction headroom available. If your income is lumpy, PPF's lock-in is a feature rather than a bug — it forces the saving. If you are not confident you would hold through a 30% drawdown without selling, PPF is the only one of the three you will actually hold to maturity, and an instrument you hold beats an instrument you abandon.

What people get wrong

The most common mistake is treating ELSS as a 3-year product. Each instalment locks for 3 years from its own debit date. So a 5-year SIP in ELSS has units that mature on a rolling basis from year 3 onwards — that's a feature for liquidity planning. See our ELSS lock-in guide for the worked example.

The second mistake is buying NPS purely for the deduction without looking at what happens at 60, when a prescribed share of the corpus has to be converted into an annuity. Annuity rates on the PFRDA panel are quoted by the insurer at the time of purchase and are typically well below long-run equity expectations — get a live quote from the annuity providers on the panel rather than assuming a rate. If your goal is wealth accumulation rather than a guaranteed pension, that conversion is a real cost to weigh against the extra ₹50,000 deduction.

How we approach this in advisor conversations

We ask three questions before suggesting a mix: (1) Is your ₹1.5 lakh cap already used up by EPF and home-loan principal? (2) What is your real horizon for this money — retirement, or a 7-year goal you will move it for? (3) Have you ever held an equity portfolio through a 25% drawdown without selling? The answers usually settle the ELSS/PPF/NPS mix in ten minutes. We are a distributor, not an investment adviser, so treat this as structured information rather than personalised advice.