NPS vs ELSS vs PPF: The Tax-Saving Showdown
Every financial year, Indians scramble to invest ₹1.5 Lakh under Section 80C to save taxes. The three most popular options are NPS (National Pension System), ELSS (Equity-Linked Savings Scheme), and PPF (Public Provident Fund). But which one actually builds the most wealth?
Real Example: Ramesh, a 30-year-old IT professional, invests ₹1.5 Lakh/year for 15 years. Assuming NPS gives 10%, ELSS gives 12%, and PPF gives 7.1%:
- NPS: Corpus of ₹52 Lakhs, but only 60% (₹31L) is tax-free. Rest goes to annuity.
- ELSS: Corpus of ₹76 Lakhs. After LTCG tax on gains above ₹1.25L, he gets ~₹72 Lakhs.
- PPF: Corpus of ₹41 Lakhs, 100% tax-free (EEE status).
For Ramesh, ELSS wins by ₹30+ Lakhs despite the tax. But if Ramesh was risk-averse, PPF's guaranteed returns might be worth the lower corpus.
How Does This Calculator Work?
The calculator computes the future value using different compounding formulas for each instrument:
1. NPS Calculation
NPS is a market-linked pension scheme. Returns depend on your asset allocation (Equity, Corporate Bonds, Government Securities).
- Formula: Standard SIP formula with your chosen return rate
- Tax Benefit: ₹1.5L under 80C + ₹50K extra under 80CCD(1B) = ₹2L total
- At Maturity: 60% tax-free lumpsum, 40% compulsory annuity
2. ELSS Calculation
ELSS funds invest 65%+ in equities, offering high growth potential with just 3-year lock-in.
- Formula: SIP formula with expected equity returns (12-15%)
- Tax Benefit: Up to ₹1.5L under Section 80C
- At Maturity: LTCG of 12.5% on gains exceeding ₹1.25 Lakh
3. PPF Calculation
PPF is a government-backed scheme with guaranteed returns and EEE (Exempt-Exempt-Exempt) tax status.
- Formula: Compound interest with yearly deposits
- Interest Rate: 7.1% p.a. (FY 2025-26), revised quarterly by govt
- At Maturity: 100% tax-free - no tax on interest or withdrawal
Key Formulas Used
SIP Future Value (NPS/ELSS)
FV = P × ({[1 + r]^n – 1} / r) × (1 + r)
- P: Annual investment (treated as yearly SIP)
- r: Annual return rate (decimal)
- n: Number of years
PPF Maturity Value
A = P × [(1+r)^n – 1] / r
Where interest is compounded annually, and contributions are made at the start of each year.
ELSS LTCG Tax
Tax = (Gains – ₹1,25,000) × 12.5%
Only gains above ₹1.25 Lakh are taxed at 12.5%. Principal is not taxed.
Detailed Comparison Table
| Feature | NPS | ELSS | PPF |
|---|---|---|---|
| Lock-in | Till age 60 | 3 years | 15 years |
| Returns | 8-12% (market) | 12-15% (market) | 7.1% (fixed) |
| Risk | Moderate | High | Zero |
| 80C Limit | ₹1.5L | ₹1.5L | ₹1.5L |
| Extra Deduction | ₹50K (80CCD1B) | None | None |
| Maturity Tax | 60% tax-free | 12.5% LTCG | 100% tax-free |
| Best For | Retirement | Wealth creation | Safety lovers |
Benefits & When to Choose Each
Choose NPS When:
- You want an additional ₹50,000 tax deduction beyond 80C (under 80CCD1B)
- You're planning for retirement and okay with locking money till 60
- You're in the 30% tax bracket and want to maximize tax savings
- Your employer offers NPS matching contribution
Choose ELSS When:
- You want highest wealth creation potential and can handle volatility
- You need liquidity - money unlocks after just 3 years
- You have medium-term goals (5-10 years) like buying a car or home down payment
- You're young and have time to ride out market cycles
Choose PPF When:
- You want guaranteed, risk-free returns
- You're building a safe debt portfolio for long-term goals
- You want 100% tax-free maturity (EEE status)
- You're in a lower tax bracket where high deductions matter less
The Verdict: Which is Best?
Here's a smart strategy that combines all three:
💡
The 50-50-50 Strategy:
1. Invest ₹50,000 in NPS for the extra 80CCD(1B) deduction (saves ₹15,600 in 30% bracket)
2. Invest ₹50,000 in PPF for guaranteed, tax-free returns (safety net)
3. Invest ₹50,000 in ELSS for growth + liquidity after 3 years
Total: ₹1.5L in 80C + ₹50K extra in NPS = ₹2L tax deduction!
Frequently Asked Questions (FAQs)
Which is better for tax saving: NPS, ELSS, or PPF?
For maximum tax savings: NPS wins with an extra ₹50K deduction under 80CCD(1B). For maximum wealth creation: ELSS historically gives 12-15% returns. For maximum safety: PPF offers guaranteed 7.1% with zero risk and 100% tax-free maturity.
What is the additional tax benefit of NPS?
NPS offers an additional ₹50,000 deduction under Section 80CCD(1B), over and above the ₹1.5 Lakh 80C limit. In the 30% tax bracket, this saves an extra ₹15,600 (₹50K × 31.2% including cess). No other 80C investment offers this extra benefit.
Is ELSS riskier than PPF and NPS?
Yes, ELSS is the riskiest among the three as it invests 65%+ in equities. However, risk decreases significantly over 7+ years. Historically, no 10-year ELSS SIP has given negative returns. PPF is zero-risk (government guaranteed), while NPS has moderate risk due to diversified asset allocation.
What happens to NPS money at age 60?
At 60, you must: (1) Withdraw up to 60% as tax-free lumpsum, (2) Use remaining 40% to buy an annuity from an insurance company for monthly pension. The annuity income is taxable as per your slab. You can also defer withdrawal till age 75.
Can I invest in all three: NPS, ELSS, and PPF?
Absolutely! Smart investors often split their investments: (1) ₹1.5L in PPF for guaranteed returns + 80C, (2) Additional ₹50K in NPS for 80CCD(1B), (3) ELSS for goals beyond tax saving where liquidity matters. This diversifies risk while maximizing total tax deductions to ₹2 Lakhs.