Under Section 80C, Indian taxpayers can claim deductions of up to ₹1.5 lakh annually (under the old tax regime). Contributions to eligible investments along with certain expenses are also counted within this cap. Over ₹1.5 lakh of Section 80C usage is not permitted under the old regime; conversely, the new regime offers lower tax slabs without allowing these deductions.
Strategic use of this limit can certainly lead to Exempt‑Exempt‑Exempt (“EEE”) instruments, where contributions, growth, and withdrawals are tax-free or EET structures where maturity gains may face long-term capital gains tax. Following the FY 2025–26 deadline (March 31, 2026), here’s a guide to instruments worth considering.
GOVERNMENT-BACKED INSTRUMENTS (LOW RISK • EEE)
Instrument |
Lock‑in |
Interest Rate (FY 25‑26) |
Liquidity |
Best For |
|---|---|---|---|---|
| PPF (Public Provident Fund) | 15 yrs | 7.1 % p.a. (Q1: Apr–Jun 2025) | Partial withdrawals after Year 7; full maturity at Year 15 | Core low‑risk, long‑term savings |
| EPF / VPF (Employee/Voluntary PF) | Until retirement | 8.25 % p.a. for FY 2024‑25 | Withdrawals permitted after separation or retirement | Salaried professionals |
| NSC (National Savings Certificate) | 5 yrs | 7.7 %, compounded yearly | Locked for 5 yrs; re‑investment qualifies again | Budget D/E capital, fixed returns |
| SSY (Sukanya Samriddhi Yojana) | Till wedding / age 21 of girl child | 8.2 % p.a. (Q1 FY 25‑26) | Partial withdrawals after age 18/reaching 50% of maturity | Parents planning girl child education/marriage |
| SCSS (Senior Citizens Savings Scheme) | 5 yrs (extendable to 8) | 8.2 % p.a., paid quarterly | Premature exit permitted after 1 yr (1% penalty) | Retirees seeking regular income |
Sources: PPF interest held at 7.1 % through June 2025; SSY and SCSS at 8.2 % for Q1 FY 2025‑26; EPF rate ratified at 8.25 %; NSC at 7.7 % as part of small savings schemes.
These instruments offer government-guaranteed safety and EEE tax benefits, but differ significantly in liquidity and lock‑in—from 5 years to 15 years.
GROWTH-FOCUSED: ELSS AND EQUITY EXPOSURE
Equity‑Linked Savings Scheme (ELSS)
- 3‑year lock‑in—the shortest among 80C instruments.
- A minimum of 80% in equity-related assets, per SEBI rules.
- Tax benefits: Qualifies for 80C deduction, gains over ₹1 lakh/year taxed at 10% LTCG.
- Returns: Top ELSS schemes have indeed delivered ~32% annualized returns over the past 3 years; category average often ranges between 12–18% like CRISIL‑AMFI index returns.
- Especially recommended for risk‑tolerant investors due to potential for high growth.
LIFE INSURANCE, ULIPs & NPS (MIX OF PROTECTION + INVESTMENT)
Life Insurance Premiums
- Only policies with premiums ≤ 10% of sum assured qualify under 80C.
- Maturity proceeds are tax‑free under Section 10(10D) (post 5-year policy term).
ULIPs (Unit‑Linked Insurance Plans)
- Combine insurance and investment; often higher costs push returns below mutual funds.
- Crucially, ULIPs where total annual premium exceeds ₹2.5 lakh (for policies issued on/after Feb 1, 2021) will not qualify for 10(10D) tax exemption; gains treated as equity capital gains.
‑ Healthy rule change effective FY25‑26 that affects only high‑premium ULIPs.
NPS Tier I
- Allowed under 80C up to ₹1.5 lakh. In addition, taxpayers can claim another ₹50,000 under Section 80CCD(1B)—bringing total deduction to ₹2 lakh.
- It comprises a market-linked and fixed-income portfolio. Subject to exit rules (partial withdrawals, annuity at 60).
HOW TO STRUCTURE ₹1.5 LAKH 80C DEDUCTION EFFICIENTLY
Strategy Component |
Best Option(s) |
Notes |
|---|---|---|
| Mandatory insurance & contributions | Term insurance premium, EPF/VPF, NSC | Secure deduction floor |
| Foundation of EEE returns | PPF (or SSY if applicable) | Ideal for risk‑averse & longer timelines |
| Growth component | ELSS (via SIP or lump sum) | Adds equity exposure with least lock‑in |
| Safe add-ons (if short on limit) | NSC, SCSS | Especially useful for conservative investors |
| Stretch to ₹2 lakh limit (if eligible) | Extra NPS Tier I | Especially for long-term retirement planning |
Remember: Insurance + principal payments (home loan, tuition fees, etc.) fall under the same ₹1.5 lakh limit—only invest further (e.g., ELSS/PPF) to reach the cap.
PORTFOLIO ALLOCATION BASED ON INVESTOR PROFILE
- Young Professionals (20s–30s, high-risk tolerance)
PPF/EPF: 20–30 % | ELSS: 65–75 % | Insurance/premium: ≤ 5 % - Mid‑career, balanced risk (30s–40s)
PPF/EPF: 40–60 % | ELSS: 30–40 % | SSY / Insurance: up to 10 % - Retirees or low-risk profile
PPF / SSY / NSC: 60–70 % | SCSS: 20–30 % | Small ELSS/SIP: 5–10 % - Families (kids’ education, marriage, home loans)
Deductible expenses (tuition, loan principal, etc.): ~40 % | Allocate remainder to safe & growth mix.
KEY TRAPS & PRACTICAL TIPS
- Lock-in ≠ performance
ELSS’s 3‑year lock-in gives flexibility, but pick funds carefully because the expense ratio matters. Avoid funds with TER > 1.2% annually. - ULIP premium ≤ ₹2.5 lakh
To retain tax-free maturity under Section 10(10D), keep ULIP premiums below the ₹2.5 lakh cap, or avoid them altogether if you don’t need the insurance wrapper. - Stop maxing the ₹1.5 lakh blindly
Deductible expenses (home loan P&I, tuition)—use only what you need; subsequently reinvest the excess into ELSS or PPF for superior potential. - Maximize SIP advantage
ELSS SIPs bought regularly reduce timing risk. Plus, their short lock-in and compounding work well when paired with PPF or EPF.
FINAL WORD
- Lock in early and systematically—prefer term insurance premiums, employer’s EPF, and compulsory deductions first.
- Build a base with PPF / EPF / SSY where applicable—collectively targeting ~60 % of tax savings budget.
- Top it off with ELSS SIPs or lump sum—these offer the shortest lock-in among EEE equities and the highest growth potential.
- Add NSC or SCSS carefully—to fill small gaps if you’ve exhausted ELSS and PPF eligibility.
- Stretch to ₹2 lakh if retirement planning matters—use NPS Tier I for that extra ₹50k deduction + structured annuity.
Deadline Reminder
For FY 2025–26 (Assessment Year 2026–27), the cutoff is March 31, 2026—so plan your investments and policy premiums accordingly. Lastly, Section 80C is available only in the old tax regime. If you’re on the new regime, the benefit no longer applies.
TL;DR Snapshot
- Max out ₹1.5 lakh deduction using a mix of PPF/EPF and ELSS.
- Consider SCSS or SSY for conservative or child‑savings-oriented investors.
- NPS Tier I adds ₹50k extra deduction (total ₹2 lakh) if eligible.
- Avoid expensive ULIPs, especially if annual premiums cross ₹2.5 lakh.
- Diversify lock-ins and product types to balance liquidity, return, and risk.