Tax-saving investments compared for 2026-27: PPF, ELSS, NPS, tax-saver FD, SSY and insurance

The main tax-saving investments under section 123 of the Income-tax Act, 2025 (formerly 80C) are PPF (15-year lock-in, tax-free returns, government-backed), ELSS mutual funds (3-year lock-in, market-linked, long-term gains taxed at 12.5% above ₹1.25 lakh), NPS (locked until 60, an extra ₹50,000 deduction, partly taxable at exit), 5-year tax-saver bank FDs (fixed rate, interest fully taxable), Sukanya Samriddhi Yojana (for a daughter, tax-free), NSC and the Senior Citizens' Savings Scheme. All of them reduce tax only if you choose the old regime. If the new regime is cheaper for you, which is true for most salaried people below about ₹5–8 lakh of claims, choose these products for their own merits, not for tax.

First question: will you use the old regime?

Before investing for tax, check the break-even in the old vs new regime comparison. Example: at ₹15 lakh salary you need about ₹5.44 lakh of old-regime claims to match the new regime. If your PF, rent and insurance only reach ₹3 lakh, a further ₹1 lakh in ELSS saves nothing in tax, because you will still be better off in the new regime.

Comparison of the main options

Option	Lock-in	Return type	Tax on returns	Good for	Watch out for
Public Provident Fund	15 years (partial withdrawals from year 7)	Government-set rate, reviewed quarterly	Tax-free interest and maturity	Safe long-term savings	Long lock-in; maximum ₹1.5 lakh a year
ELSS mutual funds	3 years per instalment	Market-linked	LTCG at 12.5% above ₹1.25 lakh a year	Long-term equity investors	Volatile; each SIP instalment has its own lock-in
NPS (own contribution)	Until 60, limited withdrawals	Market-linked, choice of asset mix	Part of corpus tax-free at exit; annuity income taxed	Retirement saving; extra ₹50,000 deduction	Compulsory annuity purchase with part of corpus
5-year tax-saver bank FD	5 years	Fixed rate	Interest taxed at slab rate every year	Conservative savers	Real return after tax can be low
Sukanya Samriddhi Yojana	Until daughter is 21 (partial at 18)	Government-set rate	Tax-free	Parents of a girl under 10	Only for a daughter; deposit limits
National Savings Certificate	5 years	Fixed rate	Interest taxable (reinvested interest counts under section 123)	Fixed-income investors	Taxable interest
Senior Citizens' Savings Scheme	5 years	Government-set rate, paid quarterly	Interest taxable	Retirees needing income	Deposit ceiling; taxable interest
Life insurance premium	Policy term	Depends on policy	Maturity tax-free only within conditions	Protection (term cover)	Poor returns on many traditional plans

Small savings rates are announced by the Ministry of Finance each quarter. Check the current rates on the National Savings Institute or India Post sites before you invest. We do not state current rates here because they change.

What each option is really worth

Illustrative example: ₹1.5 lakh in the 30% slab, old regime.

Tax saved: ₹1,50,000 × 31.2% = ₹46,800 in the year of investment.
In the 20% slab: ₹31,200. In the 5% slab: ₹7,800.

So the same investment is worth six times more in tax terms to a 30%-slab taxpayer than to a 5%-slab taxpayer. If your income is low enough to be under the old regime's 5% band, the new regime almost certainly suits you better.

Growth example (illustrative). ₹12,500 a month for 15 years at an assumed 7.1% a year grows to about ₹40 lakh, from ₹22.5 lakh contributed. The investment growth calculator lets you change the assumption. The same contribution in ELSS has no fixed return. A higher or lower assumption shows the range, but it is not a forecast.

NPS: the extra ₹50,000 and employer contribution

Your own NPS contribution can go within ₹1.5 lakh, plus a separate ₹50,000 under section 124. Together that is up to ₹2 lakh of old-regime deductions.
Your employer's contribution is deductible in both regimes (up to 14% of basic plus DA in the new regime). It is the only one of these that survives in the new regime.
At exit, part of the corpus can be withdrawn tax-free and part must buy an annuity. Annuity income is taxed at slab rates. Check the current PFRDA withdrawal rules, which have been revised in recent years.

Common mistakes

Buying insurance as an investment to fill the ₹1.5 lakh limit. A term plan plus a separate investment usually works out better.
Investing in March in a rush, without checking whether the new regime is cheaper.
Ignoring PF. Employee PF often uses up much of the ₹1.5 lakh already.
Breaking a tax-saver FD early. It is not allowed, and the deduction can be reversed.
Assuming ELSS gains are tax-free. Long-term gains above ₹1.25 lakh a year are taxed at 12.5%.

When to consult a professional

For long-term financial planning, a SEBI-registered investment adviser can help you choose products by goal and risk. Tax advisers can tell you which regime suits your income mix.

For ELSS redemptions, the capital gains examples show how the ₹1.25 lakh exemption works in practice, and the take-home salary guide shows how PF already uses part of the limit.

Frequently asked questions

Can I open PPF just to save tax this year?

You can, but money is locked for 15 years. Only do it if long-term safe savings fit your goals.

Are ELSS SIPs locked for three years in total?

No. Each instalment is locked for three years from its own date.

Is a tax-saver FD better than a normal FD?

Only if you use the old regime and can lock money for five years. Interest is taxed the same way on both.

Sources

National Savings Institute: PPF, NSC, SCSS and Sukanya Samriddhi rules
Pension Fund Regulatory and Development Authority: NPS rules
Securities and Exchange Board of India: mutual fund investor information
Income Tax Department: sections 123 and 124 of the Income-tax Act, 2025