Income tax saving options: NSC vs ELSS mutual funds. Which is better for taxpayers?
NSC vs ELSS: Numerous products qualify for tax benefits under Section 80C, including insurance, tax-saving fixed deposits, NSC, and ELSS. The suitability of an investment product depends on factors like risk tolerance, time horizon, and future fund needs. Equity Linked Saving Scheme (ELSS) mutual funds offer tax deductions up to ₹1,50,000 annually under Section 80C of the Income Tax Act, 1961.
Investing in ELSS provides the advantage of both tax benefits and wealth accumulation. ELSS funds have a short lock-in period of three years, the shortest among all tax-saving investments, and have the potential to yield high returns compared to other options under Section 80C. NSC is a popular investment option offered by the Government of India to encourage small savings among individuals.
It is available through post offices across the country and offers attractive benefits to investors. Under Section 80C of the Income Tax Act, individuals can claim a tax deduction of up to ₹1.5 lakh per financial year on the principal amount invested in NSC. However, it's important to note that while the principal amount invested in NSC is tax-free up to the specified limit, the interest earned on NSC is taxable.
Despite the taxation on interest earned, NSC remains a popular investment choice for many individuals due to its safety, and guaranteed returns The choice between ELSS and NSC hinges on individual financial goals and risk appetite. “ELSS suits those seeking higher returns with higher risk tolerance, while NSC offers stability and guaranteed returns for risk-averse investors," said Abhishek Soni, CEO and Co-founder of Tax2win. Understanding the investment horizon is crucial; ELSS, with a 3-year lock-in, suits short-term goals, while
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