For tax saving under section 80C is ELSS a better option or NPS or i should choose a mix of both + PPF? I already have mediclaim and HRA for tax saving.
Before we get into the answer lets compare the 3 schemes, very briefly. It is difficult to describe all the features of ELSS, PPF and NPS in a single answer. So here is a very short description of these options:
The choice between ELSEE, PPF and NPS will depend on:
Let me given an unconventional response. This question is somewhat similar to this: Weight loss regimen - Wheat vs Milk vs Porridge - Which is better? Let me explain.
The Indian tax code provides a number of ways to reduce the tax outgo for individual taxpayers. Instead of looking at specific products, we can divide the set into two categories.
Each set has a whole set of instruments and alphabet soup of section numbers. Examples of the first set are:
You may or may not agree that these are 'good things' to encourage. However, if you do incur these expenses, you should claim the allowed tax deductions. And of course, you should not incur the expense just because it can save tax. It would be like buying an item that you don't need just because it is 30% off MRP.
A very interesting point that very few people know. School fees for children are part of 80C deductions.
The second set includes a whole raft of 'investment' products. Do note that I called them 'investment' products. Investments are always done with a goal in mind. All of us have a good number of financial goals. If the plan for the goal includes equity products (most plans would), then you should consider ELSS. If the plan includes long-term debt products (again most plans should have this), then you should consider PPF. In either case, you should not approach them primarily as tax saving instruments. NO. You should buy them because they align with your financial plan. Tax deduction is a bonus. I consider PPF (and EPF) to be the best debt product available. I personally invest in PPF even though my 80C limit is met by items in the first set.
You asked about NPS - the simple answer "It is complicated". If there is a product that is a counter-example of the approach that I suggest, it has to be NPS. It may be suitable for some people, For many people - particularly those who may stop working well before they are 60 - it is not a good product at all. Buying NPS just because of tax deductions would be a big mistake.
In addition to these, there are methods to structure the salary package and include allowances that are tax free. HRA is one example. Of course, any smart person should look to maximize these options.
Be clear in your mind on the need for one or more of these products. If your financial plan has a place for them, do buy them. If not, stay away from them.
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Lets first understand brief about these three options
ELSS schemes are a category of mutual fund promoted by the government in order to encourage long term equity investments. Under this scheme, most of the fund corpus is invested in equities or equity-related products. There are two categories in ELSS mutual funds i.e. dividend and growth.
Now lets understand difference in these 3 products
So theses points of difference must have given you the overall features of these 3 product. ELSS is pure Equity product. NPS is half equity half debt as per your choice or can be 100% debt if you wish and PPF is pure debt option. So you cant compare orange,apple and banana.
But what you can do is make a good fruit salad of these 3 for enjoying all 3 fruits. Same can be done with PPF, NPS and ELSS. You can divide your 1.5 lakhs among 3 as per your age and risk profile. Or else you can combine PPF+ELSS as most tax payers do to enjoy benefits of equity and debt asset classes.
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To keep things Simple you should opt for PPF as an option for the tax savings required under section 80C because
Sachin Shah is a 30 year old Senior Software Engineer, working at an IT services company in Bengaluru. He and his wife want to plan for their retirement and also want to save for their child's education, wedding and for buying a car.View Case Study