When you are earning income and paying off your taxes well, the government cushions you with some saving options. Under Section 80C, a number of instruments help you save taxes. These include  ELSS, NPS, NSC, PPF, EPF, SSY, 5 years FD and so on. The government has offered more tax benefits, relaxed investment norms and made withdrawal rules more lenient in the past 10 years, making it easier for the working class to invest. Let's compare two of the popular saving schemes ELSS and National Pension System. 

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

Pooja Bhinde, Certified Financial Planner, told Zee Business TV, "The taxpayer can get exposure to both equity and save taxes in case of ELSS which provides you tax saving up to Rs 1,50,000 while NPS is retirement cover and tax saving scheme, with tax saving up to Rs 1.5 lakh and additional Rs 50,000 tax saving.''

Here is the detailed comparison of both the instruments - ELSS and NPS: 

What is ELSS?

Equity Linked Savings Scheme (ELSS) is a tax saving mutual fund which allows you to save up to Rs. 1.5 lakh in a financial year under Section 80C of the Income Tax Act.  It has the lowest lock-in period, i.e 3 years but comes with a Long Term Capital Gains Tax (LTCG) of over Rs 1 lakh being taxed at the rate of 10 on annual gains. ''ELSS provides an annual return of 12-15 per cent, which post-LTCG taxation becomes 10 to 11 per cent, more than any other scheme in 80C,'' Bhinde said.

What is NPS?

National Pension System (NPS) is a government-sponsored scheme in which individuals can invest during their earning years in order to get pension upon retirement. The investment in NPS also offers a tax deduction of Rs. 1.5 Lakh under Section 80C of the Income Tax Act and an additional deduction of Rs. 50,000 under Section 80CCD (1B).   

Features of ELSS:

1. ELSS has a 3 year lock-in period, which makes it the scheme with the lowest maturity period. 

2. The entire amount of ELSS is invested in equities in diversified ways, which is regularly monitored and watched.

3. The person can invest as low as Rs 500 as a lump sum or as a SIP investment for ELSS investments.

4. The Long Term Capital Gain Tax (LTCG) over Rs 1 Lakh is taxable at 10% on the gains from ELSS.

5. A tax deduction of up to Rs 1,50,000 lakh p.a under Section 80C of the Income Tax Act is allowed.

Watch this Zee Business TV video to know more about ELSS and NPS:

Features of NPS:

1. NPS has a lock-in period of up to retirement. It means the person needs to invest until the retirement or 60 years.

2. The contribution in NPS is invested in equity for a maximum of 50 per cent part. While the rest is distributed in government bonds, treasury etc.

3. The person can invest as low as Rs 500 as an initial contribution in a year in NPS.

4. The maturity amount is partially taxable.

5.  A tax deduction of up to Rs 1,50,000 lakh p.a under Section 80C and an additional Rs 50,000 under Section 80CCD (1B) of the Income Tax Act.

''The ELSS funds invest only in equities, while NPS invests in a mix of equities, government securities, corporate bonds and alternative investments. The investors can choose their own asset mix if they are confident of making the right choice of investment,'' said Bhinde.