# PPF, ELSS or NPS for saving tax: how the three compare

Source: https://koshex.com/blog/which-one-is-better-for-tax-saving-ppf-elss-vs-nps · Published 22 January 2024 · 9 min read

Only in the old regime do PPF, ELSS and NPS cut your tax, apart from an employer's NPS contribution. All three share one ₹1,50,000 limit under section 123; NPS adds ₹50,000 more under section 124(3). ELSS locks in for three years and PPF for 15; NPS's normal exit is at 15 years of subscription or age 60, whichever is earlier.

## Key takeaways

- PPF, ELSS and your own NPS contribution share one ₹1,50,000 limit under section 123, and only in the old regime.
- NPS adds ₹50,000 more under section 124(3), which replaced 80CCD(1B), in the old regime only.
- ELSS is not tax-free after three years: long-term gains above ₹1,25,000 a year are taxed at 12.5%.
- PPF payouts are exempt from tax, while NPS is tax-free only up to 60% of the corpus.
- The government sets the PPF rate each quarter, and it is 7.1% for October to December 2026.

## How do PPF, ELSS and NPS compare for saving tax?

All three cut your tax only under the old regime. They do it by sharing one yearly limit of ₹1,50,000 under section 123 (the old Section 80C) of the Income-tax Act, 2025. NPS adds a further ₹50,000 under section 124(3), which replaced 80CCD(1B), also in the old regime only.

A few terms first. A deduction is an amount you subtract from your income before tax is worked out. The old regime allows deductions like these. The new regime, which is the default, does not allow them for any of the three, except for one NPS case covered below.

- **PPF** is the Public Provident Fund, a government savings scheme with a rate the government sets.
- **ELSS** is a mutual fund that keeps at least 80% of its money in equity (shares of companies), with a lock-in. A lock-in is a period when you cannot take the money out.
- **NPS** is the National Pension System, a pension product that pays part of your money out as an annuity. An annuity is a regular pension bought with part of the money you have built up (the corpus) when you exit.

They differ in how the money grows, how long it is locked and how the payout is taxed. This table covers the NPS Tier I account for non-government subscribers. Tier I is the NPS account with tax benefits; Tier II is an optional extra account with none.

|  | ELSS | PPF | NPS Tier I |
| --- | --- | --- | --- |
| Deduction route | Section 123, inside ₹1,50,000 | Section 123, inside ₹1,50,000 | Section 123 for your own contribution, plus ₹50,000 more under section 124(3) |
| New regime | No deduction | No deduction | Only an employer's contribution (section 124(1)) |
| How it grows | Market-linked, at least 80% in equity | Government rate set each quarter: 7.1% for October–December 2026 | Market-linked, mix chosen by you or by your age |
| Lock-in | 3 years from each purchase | 15 years from the end of the year you open it | 15 years of subscription or age 60, whichever is earlier; leaving earlier needs at least 80% in an annuity |
| Tax on the payout | Gains taxed at 12.5% above ₹1,25,000 a year | Exempt | Lump sum exempt up to 60% of the corpus; the rest and the annuity pension are taxable |

Every deduction in this table is old regime only, except the employer's NPS contribution.

## How much tax can each one save?

Up to the shared ₹1,50,000, all three save the same, because your slab sets the saving; only NPS adds ₹50,000 more. A slab is your income-tax rate band.

Take someone in the old regime whose whole deduction falls inside one slab, with no surcharge. A surcharge is an extra charge on the tax itself once total income passes ₹50 lakh. At a 20% slab, claiming the full ₹1,50,000 under section 123 saves ₹31,200. At a 30% slab it saves ₹46,800. Both figures include cess, an extra 4% charge on the tax. If your tax is already nil, a deduction has nothing left to reduce.

The extra ₹50,000 under section 124(3), which replaced 80CCD(1B), saves ₹10,400 at a 20% slab. That is old regime only, again with no surcharge and cess included. The same amount cannot be claimed twice.

The new regime changes the picture. There, only an employer's contribution to your NPS under section 124(1) is still deductible. In the new regime that limit is 14% of salary for every employer. In the old regime it is 14% of salary for a government employer and 10% for others. PPF and ELSS save no tax in the new regime. To decide between regimes, read [how the new tax regime works](https://koshex.com/blog/features-of-the-new-tax-regime-and-its-benefits). For the full list of deductions, see [the deductions guide](https://koshex.com/blog/deductions-under-section-80c-80ccc-80ccd-and-80d).

## How long is your money locked in?

ELSS is locked for three years from each purchase. PPF is locked for 15 years, with some early access. NPS's normal exit is at 15 years of subscription or age 60, whichever is earlier.

**ELSS.** A SIP is a fixed amount invested at regular intervals. If you invest by SIP, each instalment is locked for three years from its own purchase date. The lock-in is counted instalment by instalment, as [this guide to SIP taxation](https://koshex.com/blog/how-sip-returns-are-taxed) shows. On the investor's death, the nominee or legal heir may withdraw after one year.

**PPF.** The account matures 15 years from the end of the year you open it. You can extend it in blocks of five years, with or without deposits. Deposits run from ₹500 to ₹1,50,000 a financial year.

You can withdraw part of the balance once a year, after five years from the end of the year of opening. The limit is 50% of the balance at the end of the fourth year before, or at the end of the year before, whichever is lower. Loans are possible from one year after the end of the year of the first deposit until five years after it. A loan can be up to 25% of the balance at the end of the second year before you apply. It costs 1% a year, or 6% if not repaid within 36 months.

Closing the account early is allowed only after five years. It needs one of three grounds: life-threatening illness, higher education or a change in residency. The rate drops by one percentage point. To open one, see [how to open a PPF account](https://koshex.com/blog/how-to-open-a-ppf-account).

**NPS.** For a non-government subscriber, at a normal exit, at least 20% of the corpus must buy an annuity. You can take up to 80% as a lump sum or in regular withdrawals. A corpus of ₹8 lakh or less can be withdrawn in full. Leaving early needs at least 80% in an annuity. After three years of subscription you can withdraw up to 25% of your own contributions for a listed purpose, with limits on how often. The rules are in [this guide to the new NPS rules](https://koshex.com/blog/new-nps-rules-and-tax-benefits).

## How are the returns taxed when you take money out?

PPF pays out tax-free, ELSS gains are taxed at 12.5% above ₹1,25,000 a year, and NPS is tax-free only up to 60% of the corpus.

ELSS is not tax-free after three years. A long-term capital gain is the profit on units held beyond the holding-period line, which is 12 months for equity-oriented funds. The three-year lock-in is longer than that 12-month line, so an ELSS gain is long term. The tax is 12.5% on the gains above ₹1,25,000 in the tax year. See [what to do when the lock-in ends](https://koshex.com/blog/your-elss-lock-in-period-is-over-whats-next) and [the guide to tax on redemption](https://koshex.com/blog/tax-on-mutual-fund-redemption).

PPF payments out are excluded from your total income, so the payout is not taxed.

NPS has two parts. The Act exempts a lump sum only up to 60% of the total amount payable. The part above 60% is taxed at your slab rate. The pension you get from the annuity is also taxable.

## How much risk does each carry?

PPF pays a rate the government sets every quarter (7.1% for October–December 2026), while ELSS and NPS both move with markets.

The PPF rate is reviewed every quarter. It has stayed the same for 12 quarters in a row, from 1 January 2024 to 31 December 2026. The next review can change it.

ELSS keeps at least 80% in shares, so its value rises and falls with the share market. As an example, not a forecast: if shares fell 30%, ₹1,00,000 in ELSS could be worth ₹70,000 for a while. The lock-in means you cannot sell during those three years from each purchase.

NPS returns are market-linked. Your money is invested in shares, corporate bonds and government securities. You can choose the mix yourself (active choice) or take an age-based mix (auto choice). No return is fixed. According to the NPS Trust, under active choice the share part can go up to 75%.

How large a fall can you sit through? The Koshex app runs a risk-profile questionnaire. It is free.

## How much can each grow over 15 or 25 years?

On Koshex's calculators, ₹1,50,000 a year in PPF reaches about ₹40.7 lakh in 15 years if the rate stayed at 7.1% every year. A ₹12,500 monthly ELSS SIP at an assumed 10% a year reaches about ₹52.2 lakh.

The PPF figure comes from the [PPF calculator](https://koshex.com/calculators/ppf-calculator). It puts ₹1,50,000 in at the start of each year, against ₹22,50,000 invested in all, and assumes the rate stays at 7.1% every year. That is an assumption, because the rate is reset each quarter. Run the same deposits for 25 years, which means two five-year extensions with deposits, and the balance is about ₹1.03 crore on ₹37,50,000 invested. The crossing of ₹1 crore comes in year 25, still on that unchanged rate.

The ELSS figure comes from the [SIP calculator](https://koshex.com/calculators/sip-calculator). ₹12,500 a month adds up to ₹1,50,000 a year, the whole section 123 limit, deductible in the old regime only. Over 15 years that is ₹22,50,000 invested. At an assumed 10% a year it becomes about ₹52.2 lakh, and at an assumed 12% about ₹63.1 lakh. For ₹1 crore, the assumed 12% reaches it in year 19, and the assumed 10% in year 21. These are arithmetic on a steady rate, not forecasts, and real equity returns move up and down. They are before tax on long-term gains above ₹1,25,000 a year, taxed at 12.5%.

NPS gets no figure here. Try your own assumptions in the [NPS calculator](https://koshex.com/calculators/nps-calculator).

## Can you use more than one of them?

Yes, but PPF, ELSS and your own NPS contribution share one ₹1,50,000 limit, so more products do not mean more deduction.

The exception is NPS's extra ₹50,000 under section 124(3), old regime only. An employer's NPS contribution is separate again.

So the mix is a question of other factors. How many years can the money stay put? Would you need access before then? How large a fall can you sit through? And are you in the old regime at all? The answer to the last one decides whether any of these deductions exists, so settle the regime first. [Can you invest in both PPF and NPS?](https://koshex.com/blog/can-you-invest-in-both-ppf-and-nps-for-tax-free-returns) covers that pair in more detail.

Older options sit in the same limit too, in the old regime only. These are NSC, life insurance premiums, a five-year bank fixed deposit and a five-year post office time deposit. Read about [NSC and KVP](https://koshex.com/blog/nsc-and-kvp), [post office schemes](https://koshex.com/blog/post-office-savings-schemes) and [tax-saving fixed deposits](https://koshex.com/blog/what-is-a-tax-saving-fixed-deposit).

On ELSS, Koshex helps with the ELSS and section 123 decision each financial year. You can buy [ELSS funds](https://koshex.com/mutual-funds/categories/elss-funds) as regular plans through Koshex, an app run by an AMFI-registered mutual fund distributor. Browse them on the [mutual funds page](https://koshex.com/mutual-funds).

## Frequently asked questions

### Which is better for saving tax: PPF, ELSS or NPS?

Only in the old regime do PPF, ELSS and NPS cut your tax, apart from an employer's NPS contribution. It depends on how long you can leave the money, how much access you need, how large a fall you can take, and your regime.

### Is ELSS tax-free after three years?

No. ELSS gains are long term, and long-term gains above ₹1,25,000 in a tax year are taxed at 12.5%. The three-year lock-in only decides when you can sell. It does not change the tax.

### Can I invest in PPF, ELSS and NPS at the same time?

Yes. But PPF, ELSS and your own NPS contribution share one ₹1,50,000 limit under section 123, old regime only. More products do not raise it. Only NPS has an extra ₹50,000, under section 124(3).

### Does NPS give a tax deduction beyond ₹1.5 lakh?

Yes, up to ₹50,000 more under section 124(3), which replaced 80CCD(1B), in the old regime only. The same amount cannot be claimed twice. An employer's contribution is deductible even in the new regime, up to 14% of salary.

### Is a ULIP or PPF better for saving tax?

A ULIP is a life insurance policy that also invests, and its premium counts under section 123 within the same ₹1,50,000 limit, old regime only. The premium counts up to 10% of the sum assured (policies issued on or after 1 April 2012); IRDAI locks a ULIP for five years. For ULIPs issued from 1 April 2023, the maturity payout is tax-free only if the total yearly premium is below ₹2,50,000. Above the limit the gain is taxed as a capital gain, while PPF payouts are exempt.

### Do older options like NSC, tax-saving FDs and insurance premiums still save tax?

Yes, but only in the old regime. NSC, life insurance premiums, a five-year bank fixed deposit and a five-year post office time deposit count inside the same ₹1,50,000 under section 123. Interest on NSC and on a tax-saving FD is taxed, PPF payouts are exempt, and KVP does not count. Koshex sells tax-saving fixed deposits.

### Which gives the highest return: PPF, ELSS or NPS?

No one can say in advance. The government sets the PPF rate each quarter, and it is 7.1% for October to December 2026. ELSS and NPS returns move with markets, and no return is fixed. Past returns do not tell you the future.

### Is NPS better than PPF?

They work differently. NPS is market-linked. Its normal exit is at 15 years of subscription or age 60, whichever is earlier, and at least 20% must then buy an annuity. Up to 60% of the corpus is tax-free, and it adds a ₹50,000 deduction in the old regime. PPF has a government-set rate, lasts 15 years, pays out tax-free and sits inside the ₹1,50,000.

*This article explains how things work; it is not advice to buy or sell any investment. Mutual fund investments are subject to market risks, read all scheme related documents carefully.*