NPS, PPF, ELSS: the order matters more than the rate

Friend rang up on a chai call this evening. Fresh financial year just started. Old questionnaire from his CA in front of him.

"NPS or PPF or ELSS. Which one."

I told him that was the wrong question. The three are not competitors on a shelf. They are three different lock-ins doing three completely different jobs. NPS locks the money till age 60 and blends equity and debt at roughly 9.5 pct, but only 60 pct of the corpus comes out tax-free, the other 40 pct must annuitize at slab rates. PPF locks 15 years at 7.1 pct, but it is EEE end to end, every rupee at maturity is tax-free. ELSS locks just 3 years per SIP at 12 pct gross, but you pay 12.5 pct LTCG on gains above the Rs 1.25 lakh annual exemption.

Run it on Rs 1.5 lakh a year for 20 years and the numbers land in a surprising order. NPS accumulates Rs 81.1 lakh, of which Rs 48.7 L is tax-free lump and Rs 32.4 L pays out as a roughly Rs 16,200 monthly annuity taxed at your slab. PPF lands at Rs 62.2 lakh, fully tax-free. ELSS lands at Rs 94.2 lakh post LTCG and stays liquid the whole way.

What the table actually teaches is that the Rs 50,000 NPS slot under Section 80CCD(1B) sits on top of the 80C ceiling. It does not compete with PPF or ELSS or EPF. At a 30 pct slab it pays Rs 15,600 in saved tax the day the SIP debits, which means a rate-led picker leaves Rs 15,600 a year on the table. After that, ELSS for growth and the shortest lock-in, PPF for tax-free fixed-income exposure, NPS for the retirement bucket your behaviour will not touch. The order is the product.

Honest version. Stack the deductions in the order that makes your slab pay you, not the brochure

The question before the order: which regime?

The order in the opening assumes something the post never said out loud. Every one of these deductions, the Rs 1.5 lakh basket that used to be section 80C and the extra Rs 50,000 for your own NPS contribution, is available only in the old tax regime. Since FY 2023-24 the new regime is the default, and the Income-tax Act 2025, in force from 1 Apr 2026, keeps it as the default in section 202. In the new regime, the e-filing portal's own FAQ is plain: Chapter VI-A deductions such as 80C and 80D cannot be claimed, with a few exceptions such as the employer's NPS contribution.

So the first decision is not NPS against PPF. It is whether your deductions are large enough for the old regime to beat the new one at all.

When the old regime wins

The new regime has lower slab rates, a Rs 75,000 standard deduction for salaried people, and no tax at all up to Rs 12 lakh of taxable income after the Rs 60,000 rebate. The old regime has higher rates but lets you subtract deductions. At Rs 20 lakh of salary, here is the gap with the full Rs 2 lakh of 80C and NPS deductions claimed.

The old regime needs about Rs 7.1 lakh of total deductions at a Rs 20 lakh salary just to draw level, and about Rs 5.4 lakh at Rs 15 lakh. That usually takes a large house rent allowance, home loan interest and the full investment basket together. Put your own figures into the calculator.

If the old minus new figure is positive, the deductions in the opening are saving tax inside a regime that costs more overall. The Rs 15,600 from the NPS slot is real only for someone already better off in the old regime.

The order, once the regime is settled

For someone who has worked out that the old regime wins, the opening's order holds, with one step added in front of it.

1. Pick the regimeCompare both on your actual salary and deductions every year.
2. Count what is already in the basketEmployee provident fund, life cover premium, home loan principal and school fees fill the Rs 1.5 lakh first.
3. Add the NPS slotThe extra Rs 50,000 sits above the Rs 1.5 lakh ceiling, old regime only.
4. Fill the gap by jobELSS for growth with a 3 year lock, PPF for tax free fixed income with a 15 year lock.

For someone in the new regime, the same three products are still useful, just for their jobs rather than their deductions. ELSS becomes an equity fund with a lock in. PPF stays tax free on interest and maturity. NPS is still a retirement account your behaviour cannot raid early. The tax label stops deciding the order.

The free Learn module on tax efficient portfolio construction puts regime choice, lock ins and the capital gains rules into one framework. The retirement calculator projects a corpus for any contribution and horizon. Related: day 364 against day 366 and the Rs 1.25 lakh you forget every April.