C.K. Gupta
Under the old regime, Section 80C shelters up to ₹1.5 lakh a year — but the four most popular options do very different jobs. PPF pays 7.1% tax-free for 15 years; NSC pays 7.7% for 5 years but the interest is taxable; a 5-year tax-saver FD pays roughly 7% and is fully taxable; ELSS has the shortest lock-in (3 years) and market-linked growth, with long-term gains taxed at 12.5% only above ₹1.25 lakh a year. On a ₹1.5 lakh investment, PPF ends at about ₹2.12 lakh tax-free in 5 years, NSC at about ₹1.96 lakh after tax, and an FD at about ₹1.92 lakh after tax. There is no single winner — there is a right one for your horizon. Verified November 2026 · TaxGST.in
Every December, the same question lands in every salaried household: where do I put ₹1.5 lakh so Section 80C saves the most tax? The honest answer is that 80C is not one decision, it is four different products wearing the same deduction. A PPF and an ELSS both “save ₹46,800 of tax” for a 30%-slab earner — and then behave nothing alike for the next fifteen years. Here is the comparison with real numbers, so you can pick by what the money is for, not by what the agent selling it earns.
One thing first: 80C exists only in the old regime. If you file under the new regime, none of these deductions apply and this comparison is moot. If you are unsure which regime you are in, read the Section 80C investment guide first, then come back — and see the deductions hub for every 80C option and what each one actually saves you.
The four options, side by side
| Option | Return (Oct–Dec 2026) | Lock-in | Tax on returns |
|---|---|---|---|
| PPF | 7.1% fixed, compounded annually | 15 years | Zero — EEE: deposit, interest and maturity all tax-free |
| NSC (VIII Issue) | 7.7% fixed | 5 years | Interest taxable every year (deemed reinvested, so it also earns 80C in years 1–4) |
| 5-year tax-saver FD | Roughly 6.5–7% at large banks | 5 years | Interest fully taxable at your slab rate |
| ELSS mutual fund | Market-linked, no guaranteed return | 3 years (shortest) | LTCG 12.5% on gains above ₹1.25 lakh a year; dividends at slab rate |
Rates for PPF, NSC and other small-savings schemes are notified quarterly by the Department of Economic Affairs — the October–December 2026 rates (PPF 7.1%, NSC 7.7%) were fixed by office memorandum dated 30 September 2026 and are unchanged from the previous quarter.
Worked example: ₹1.5 lakh for 5 years, 30% slab
Put ₹1,50,000 into each option and leave it five years:
- PPF at 7.1%: grows to about ₹2,11,635. Tax: nil. You keep the lot.
- NSC at 7.7%: grows to about ₹2,17,480 — the highest gross figure — but the ₹67,480 of interest is taxable. At 31.2% (30% + cess), that is about ₹21,050 of tax, leaving about ₹1,96,430.
- Tax-saver FD at 7%: grows to about ₹2,10,380. Interest of about ₹60,380 costs about ₹18,840 in tax, leaving about ₹1,91,540.
- ELSS at an illustrative 12% a year: grows to about ₹2,64,350. The gain of about ₹1,14,350 sits inside the ₹1.25 lakh annual LTCG exemption, so no capital-gains tax is due on it — if your total long-term gains that year stay within the exemption. But 12% is an illustration, not a promise: ELSS returns are market-linked and a bad three years can leave you below the FD.
The lesson in one line: the highest headline rate (NSC’s 7.7%) does not produce the highest post-tax outcome — PPF’s tax-free 7.1% beats it, and the ELSS beats both only if the market cooperates. For the tax treatment of fund gains in detail, see the mutual-fund taxation guide — equity 12.5%, debt-fund slab rule, and grandfathering.
Which one fits which goal
- Money you will need in 3–5 years (a house deposit, a child’s admission): NSC or a tax-saver FD. Fixed, predictable, and out in five years. ELSS is wrong here — a 3-year lock-in is not the same as a 3-year guarantee.
- Money you can forget for 15 years (retirement, a young child’s future): PPF. Tax-free compounding for fifteen years is almost impossible to beat at this risk level, and the ₹1.5 lakh annual deposit cap matches the 80C limit exactly.
- Money you want to grow, and you can watch it fall 20% without panicking: ELSS. The 3-year lock-in is the shortest in 80C, and the ₹1.25 lakh LTCG exemption shelters modest gains entirely.
- You are a senior citizen: look past this table at the Senior Citizens’ Savings Scheme — 8.2% paid quarterly, and the deposit also qualifies under 80C.
- You want a deduction beyond ₹1.5 lakh: NPS. An extra ₹50,000 a year is deductible under 80CCD(1B), over and above 80C — but read the NPS exit rules first: 60% comes back tax-free at 60, 40% must buy an annuity whose pension is taxable.
And a practical point for December: you do not have to put the whole ₹1.5 lakh in one place. EPF contributions from your salary already use up part of your 80C limit — check your payslip before buying anything else, or you will buy a deduction you have already used. The mid-year tax-moves checklist shows how to count what is already claimed before March.
FAQs
Does Section 80C apply in the new tax regime?
No. The new regime does not allow 80C deductions. This entire comparison only matters if you file under the old regime.
Which 80C option gives the highest post-tax return?
Over five years, PPF’s tax-free 7.1% beats NSC’s taxable 7.7% and a tax-saver FD’s taxable ~7% for anyone in the 20% or 30% slab. ELSS can beat all three, but only if markets deliver — its return is not guaranteed.
Is PPF interest really tax-free?
Yes. PPF is EEE — the deposit gets 80C, the interest is exempt, and the maturity amount is exempt. It is the only 80C option with all three stages tax-free.
Can I split ₹1.5 lakh across ELSS, PPF and NSC?
Yes. The ₹1.5 lakh is a combined limit, not a per-option limit. Splitting is often the sensible answer — PPF for the safe core, ELSS for growth.
What is the lock-in for ELSS?
Three years per investment — the shortest lock-in of any 80C option. Each SIP instalment has its own 3-year clock.
Sources
- Department of Economic Affairs, Ministry of Finance, Office Memorandum F.No.1/4/2019-NS dated 30 September 2026 — small-savings rates for 1 October–31 December 2026: PPF 7.1%, NSC 7.7%, SCSS 8.2%, SSY 8.2%, KVP 7.5%.
- Section 80C, Income-tax Act, 2025 — deduction up to ₹1.5 lakh a year (old regime only); Section 80CCD(1B) — additional ₹50,000 NPS deduction.
- Finance Act, 2024 — long-term capital gains on equity-oriented funds taxed at 12.5% above the ₹1.25 lakh annual exemption.
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