Section 80C caps deductions at ₹1.5 lakh per financial year. If you’re on the old regime (still worth it for many — see our new vs old comparison), you’re choosing where to put that money. The three usual suspects are PPF, ELSS, and tax-saver FD. Here’s how they actually compare on lock-in, returns, and post-tax corpus.
The one-page verdict
- ELSS (equity-linked savings scheme): shortest lock-in, highest expected return, market-linked risk, LTCG taxed at 12.5% above ₹1.25L annual exemption. Best for long-horizon investors who can tolerate equity drawdown.
- PPF (Public Provident Fund): 15-year lock-in, currently 7.1% (quarterly-notified), fully tax-free (EEE). Best for a guaranteed floor you never want to touch — retirement, long-term wealth, inheritance.
- Tax-saver FD: 5-year lock-in, 6.5-7.5% depending on bank, interest taxed at slab. Best only when you specifically want a fixed rate + 5-year liquidity and ELSS / PPF don’t fit. Usually the worst of the three.
Side-by-side (FY 2026-27)
| Feature | ELSS | PPF | Tax-saver FD |
|---|---|---|---|
| Lock-in | 3 years (shortest) | 15 years (partial withdrawal from year 7) | 5 years (no premature) |
| Expected return | 12-15% CAGR (market-linked, not guaranteed) | 7.1% (quarterly-notified, historically 7-8.5%) | 6.5-7.5% fixed (senior citizens +0.5%) |
| Risk | High (equity drawdowns) | Sovereign — zero credit risk | DICGC-insured to ₹5L per bank |
| Tax on growth | LTCG 12.5% above ₹1.25L exemption (if held > 12 months) | Fully exempt under Section 10(11) | Interest taxable at slab annually (TDS u/s 194A) |
| Max per year in this instrument | No cap; only ₹1.5L is deductible | ₹1.5L hard cap per PAN | No cap; only ₹1.5L is deductible |
| Liquidity mid-term | Full after 3 years | Loan from year 3, partial from year 7 | None until maturity |
Post-tax worked example: ₹1.5L/year for 15 years at 30% slab
Assume you can deploy ₹1.5L every year into any one of these, stay on the old regime for 15 years, and you’re in the 30% slab throughout. Numbers rounded to nearest ₹10K.
ELSS — 12% CAGR assumption
- Annual contribution: ₹1.5L
- Future value after 15 years at 12%: ~₹56.0 lakh (principal ₹22.5L)
- At redemption: capital gains ≈ ₹33.5L, of which ₹1.25L × 15 = ₹18.75L of exemptions if you redeem in tranches (or just ₹1.25L if a single redemption).
- Assume single-shot redemption: LTCG tax = 12.5% × (33.5 − 1.25)L ≈ ₹4.03 lakh.
- Post-tax corpus: ~₹52.0 lakh.
- 80C deduction saved: ₹1.5L × 30% × 15 = ₹6.75L over the 15 years.
PPF — 7.1% assumption (current rate)
- Annual contribution: ₹1.5L
- Future value after 15 years at 7.1%: ~₹40.7 lakh. Entire amount is tax-free on maturity under Section 10(11).
- Post-tax corpus: ~₹40.7 lakh.
- 80C deduction saved: ₹1.5L × 30% × 15 = ₹6.75L over the 15 years.
Tax-saver FD — 7% assumption, interest taxed annually
- Annual contribution: ₹1.5L (new 5-year FD each year)
- Each FD runs 5 years at 7% compounded quarterly, but interest is taxed annually at 30% slab. Effective post-tax rate: 7% × (1 − 0.30) = 4.9% — plus compounding lost to TDS each quarter.
- Stacking 15 years of consecutive 5-year FDs (assume you reinvest maturity proceeds) at ~4.9% post-tax → corpus ≈ ₹32-33 lakh.
- Post-tax corpus: ~₹32.5 lakh.
- 80C deduction saved: ₹1.5L × 30% × 15 = ₹6.75L over the 15 years.
Summary — 15-year corpus at 30% slab
- ELSS: ~₹52.0 lakh (highest, but market-linked variance)
- PPF: ~₹40.7 lakh (guaranteed, tax-free)
- Tax-saver FD: ~₹32.5 lakh (worst at high slabs due to annual interest tax)
For a 30%-slab, 15-year horizon, equity investor, ELSS is worth ~₹11 lakh more than PPF and ~₹20 lakh more than FD. But PPF’s guarantee is real — if you redeem ELSS into a 2008-style drawdown in year 14, you may take home less than PPF would have paid.
Practical allocation patterns
“Safe floor + equity kicker”
Most advisors recommend splitting the ₹1.5L: ~₹50K into PPF (builds a 15-year tax-free floor), ~₹1L into ELSS (equity kicker). You get the sovereign guarantee on part, market upside on the rest, and the full ₹1.5L deduction.
“All-equity if horizon allows”
If you’re under 40 with a 20+ year horizon and no equity in other savings (some salaried employees are 100% debt via EPF), put the full ₹1.5L in ELSS. The lock-in is only 3 years but in practice you’ll hold longer, and equity compounds harder over long horizons.
“Max PPF if already over-allocated to equity”
If you already have significant equity via salary-linked SIPs, NPS, and direct equity — so your overall portfolio is 70%+ equity — put ₹1.5L into PPF to rebalance toward safety. The 7.1% tax-free return is genuinely hard to beat on a risk-adjusted, post-tax basis.
When tax-saver FD makes sense
- You’re in a low tax slab (10% or 20%) where the annual interest-tax drag is much milder.
- You specifically want a 5-year (not 15-year, not 3-year) lock-in — e.g., matching it to a known future expense.
- You’re already maxed out PPF (₹1.5L cap) and don’t want more equity.
- You want DICGC insurance with sovereign-ish backing (up to ₹5L per bank).
Senior citizens are a partial exception — SCSS (Senior Citizen Savings Scheme) qualifies for 80C, locks for 5 years, currently pays 8.2%, and interest is taxable but with higher exemption thresholds. SCSS usually beats tax-saver FD for eligible investors.
What the new regime changes
If you’re on the new regime, Section 80C deduction is not available. You still get the ₹75,000 standard deduction and can invest freely in PPF / ELSS / FD — you just don’t get the ₹1.5L tax deduction on top. Compare regimes in the Income Tax Calculator before deciding where to park money.
The ₹1.5L cap is an under-bet on equity
₹1.5L over a 30-year career is ₹45L of principal. Even at ELSS returns (12% CAGR) that’s a ~₹4 crore corpus. But compared to actual retirement needs for a couple targeting ₹1L/month in real terms post-60, a ~₹4cr corpus is barely enough. Section 80C should be the floor of your equity allocation, not the ceiling. Add unrestricted SIPs on top; see the SIP vs lumpsum post for how to deploy additional savings.
Run your own 80C numbers
Plug your target allocation into the PPF Calculator (maturity at current GoI rate), the FD Calculator (post-tax-adjusted maturity), and the SIP Calculator for ELSS projections. Use the Income Tax Calculator to confirm the actual rupee value of the ₹1.5L deduction at your slab.
Sources
- Department of Economic Affairs quarterly small-savings notifications — current PPF rate (7.1% for FY 2026-27).
- Income Tax Act 1961 — Sections 10(11), 80C, Finance Act 2024 LTCG rate changes.
- SEBI / AMFI ELSS category definition (minimum 80% equity, 3-year lock-in).
- SBI, HDFC, ICICI, Axis published tax-saver FD rate cards.