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ELSS vs PPF: Which is the Better Tax-Saving Option?

The article "ELSS vs PPF: Which Tax-Saving Option is Better?" compares two popular tax-saving investments in India: Equity Linked Savings Scheme (ELSS) and Public Provident Fund (PPF). ELSS invests in equity markets, offers tax benefits under Section 80C, has a three-year lock-in period, and potentially higher returns subject to market risks. Returns above Rs. 1 lakh are taxed at 10%. PPF, a government-backed savings scheme, also offers tax benefits under Section 80C. It has a fixed interest rate of 7.1% per annum, a 15-year lock-in period, and tax-free interest earnings. The choice between ELSS and PPF depends on an investor's goals, risk tolerance, and investment horizon. ELSS suits those willing to accept higher risk for potentially higher returns, while PPF is ideal for those seeking low-risk, fixed returns. The article provides a concise comparison to help investors decide based on their preferences.

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ELSS vs PPF: Which is the Better Tax-Saving Option?

As an investor, it's essential to make the most of tax-saving opportunities to minimize your tax liability. Two popular tax-saving options in India are Equity Linked Savings Scheme (ELSS) and Public Provident Fund (PPF). Both offer tax benefits under Section 80C of the Income Tax Act, 1961, but they have distinct features, benefits, and risks. In this article, we'll delve into the details of ELSS and PPF, comparing their features, benefits, and risks to help you decide which one is the better tax-saving option for you.

What is ELSS?

ELSS is a type of mutual fund that invests in equity markets, offering tax benefits under Section 80C. It has a shorter lock-in period of three years, making it an attractive option for investors with a higher risk appetite. ELSS funds have the potential to generate higher returns over the long term, but they are subject to market volatility.

Key Features of ELSS:

  • Contributions up to Rs. 1,50,000 per year are tax-exempt under Section 80C
  • Shortest lock-in period among all Section 80C options (three years)
  • Returns are market-linked, offering potentially higher returns over the long term
  • 10% Long-Term Capital Gains (LTCG) tax applicable if gains exceed Rs. 1 lakh per year
  • Can continue to invest in ELSS even after the lock-in period

What is PPF?

PPF is a savings scheme introduced by the Government of India to encourage people to save for their retirement. It's a low-risk investment option with a fixed interest rate, currently at 7.1% per annum. PPF offers tax benefits under Section 80C, and the interest earned is entirely tax-free.

Key Features of PPF:

  • Contributions up to Rs. 1,50,000 per year are tax-exempt under Section 80C
  • Fixed interest rate, currently at 7.1% per annum
  • Risk-free investment, backed by the Government of India
  • Mandatory lock-in period of 15 years, with an option to extend for another five years
  • Partial withdrawals allowed from the sixth year
  • Interest earned is entirely tax-free

ELSS vs PPF: Comparison

Feature ELSS PPF
Lock-in Period 3 years 15 years
Risk Higher Lower
Returns Market-linked, potentially higher Fixed, 7.1% per annum
Tax Benefits Up to Rs. 1,50,000 per year Up to Rs. 1,50,000 per year
Interest Earned Taxable (10% LTCG) Tax-free

Which is the Better Tax-Saving Option?

The choice between ELSS and PPF depends on your investment goals, risk appetite, and time horizon. If you're willing to take on higher risk and have a longer time horizon, ELSS might be a better option for you. However, if you prefer a low-risk investment with a fixed return, PPF could be the way to go.

Conclusion

Both ELSS and PPF offer tax benefits under Section 80C, but they cater to different investment profiles. ELSS is suitable for investors with a higher risk appetite and a longer time horizon, while PPF is ideal for those who prefer a low-risk investment with a fixed return. By understanding the features, benefits, and risks of each option, you can make an informed decision and choose the better tax-saving option for your financial goals.

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Krishna Gopal Varshney, Founder & CEO of Myitronline Global Services Private Limited at Delhi. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. Visit our website for latest Business News and IT Updates.


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Krishna Gopal Varshney

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Krishna Gopal Varshney, Founder & CEO of Myitronline Global Services Private Limited at Delhi. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. Visit our website for latest Business News and IT Updates.

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