Public Provident Fund (PPF) is a long-term savings scheme backed by the government of India, which provides assured interest rates and tax benefits as per the Income Tax Act. The Equity Linked Saving Scheme
or ELSS, on the other hand, is a financial instrument that allows you to invest in the equity markets for savings.
Both PPF and ELSS are common savings options among investors in India. However, there are certain key differentials involved. The insurers of the PPF scheme can expect an annual compounding interest rate of up to 7.1 per cent, with a maturity period of 15 years. Not only the principal investment, but the returns are also tax exempted under the PPF model. The ELSS differs here, as its returns are not tax-free and are applicable for Long-Term Capital Gain (LTCG) tax. The lock-in period is for 3 years.
Where Should You Invest Rs 1.5 Lakh For Tax Saving: PPF or ELSS
Tax Benefits
Both PPF and ELSS are tax benefit schemes under 80C of the Income Tax Act. If you invest Rs 1,50,000 in a financial year in the PPF scheme, you can get a tax deduction of up to Rs 1,50,000. Investments in ELSS also qualify for 80C tax deduction up to Rs 1.5 lakh in a financial year. However, unlike the PPF, the returns are not exempt from tax in the ELSS model.
In the Public Provident Fund, you won’t have to pay any capital gains tax. But with the Equity Linked Savings Scheme, 10 per cent of Long-Term Capital Gain tax, without indexation benefit, is levied if the capital gain exceeds 1 lakh.
Maturity Period
The PPF comes with a pre-defined maturity period of 15 years, with no option to exit before the term ends until an exemption is provided for critical situations described to the authority. Investors can also extend their PPF tenure in blocks of five years. In contrast, the ELSS does not have any fixed tenure. But it has a three-year lock-in period, on completion of which, investors can avail of the unit redemption or exit from the ELSS fund scheme.
Withdrawal
Despite a 15-year maturity term, partial withdrawals are allowed under the PPF scheme for account holders after five years, wherein they can withdraw a maximum of 50 per cent of the total balance. Investors can make a withdrawal only once during a financial year. No partial withdrawals are part of the ELSS scheme, in which the corpus is locked in strictly for three years.
Investment Limit
You can start and maintain a PPF account with a deposit of Rs 500. The scheme has an upper investment limit of 1.5 lakhs into an account during a financial year. ELSS is a mutual fund scheme that has no upper limit defined. Here, the minimum amount of lump sum and SIP is considered by the fund house.
Loan Facility
Both PPF and ELSS come with a loan facility. If you are a PPF account holder, you can get a loan against your PPF sum for a financial emergency during the 3rd and 6th financial year of the scheme. The government of India provides cheap interest rates and various other loan benefits to such PPF owners.
The Mutual Fund offers digital loans against the ELSS banking and non-banking sectors. The interest rate for a loan against ELSS varies depending on the institution and must be repaid before you are allowed to sell those units held by the lending institution.