NPS Vs Mutual Funds After You’ve Exhausted 80C

investing after exhausted 80c

Which is more beneficial, investing in NPS and get 50k deduction or investing in the mutual fund even if exhausted 80C in India?

Investment in India is sometimes confusing if you depend only on tax deduction benefits. NPS (National Pension Scheme) has a long term investment structure. This financial scheme has an aim to fulfill the retirement income of a salaried or non-salaried individual. Mutual funds allow saving less and earning more in India.

Most of the mutual funds offer a higher interest rate in comparison to NPS. Now, the question is investing in NPS and get 50k additional tax deduction is beneficial or not. Here you will get guidance to choose the best for you between NPS and mutual fund even if exhausted 80C in India.

NPS or mutual fund even if exhausted 80C


An individual will get an Income Tax deduction with NPS as the Tax benefit comes under the section of 80CCD (1B).  Investment of Rs. Fifty thousand in Tier I of an NPS account per financial year will give a significant tax deduction. NPS offers an additional Rs.50, 000 tax deduction excluding Rs. 1.5 lakh tax benefit. It is under the section 80 CCD (1) of the Income Tax Act.

If your savings already have exhausted 80C of Income Tax Act, it means you already availed Rs.1.5 lakh of tax benefits per annum. So, if you would like to find out a good option after this tax saving, NPS is a preferable choice. It will allow getting an extra tax benefit of Rs.50,000 per financial year.

Remarks on NPS investment

NPS is a retirement-oriented savings scheme. It aims to provide annuity after the age of 60. But, always keep it mind that you will have to save for an extensive period to avail of annuities. And till the day you provide investment in the NPS account, you will get a tax deduction for Rs.1.5 lakh and an additional deduction of Rs.50,000.  So, it means if your 80C of the Income Tax Act is exhausted, you are still getting an additional deduction of Rs.50,000. But NPS has some liquidity issues if you try to withdraw your savings. You can only withdraw for certain issues like a child’s education, house building, and marriage, etc.

Mutual Funds

Not all mutual funds will offer tax savings benefits. If you need to invest in mutual funds only for tax deductions, you can choose the Equity Linked Savings Scheme (ELSS). It will help you to claim up to Rs.1.5 lakh of tax deduction, which comes under Section 80C of Income Tax Act. But if your claim of 80C is already exhausted, ELSS cannot help you to get more. So, it is remarkable for mutual funds that these cannot function better than NPS for a tax deduction.

Remarks on mutual funds

The returns of mutual fund equities are always higher than NPS. So, if you prefer the return amount as a profit of the investment, mutual funds are the best option. If your savings do not need the aid of 80C anymore for tax benefits, mutual funds are the top choices for grabbing profits.

Which one is for you?

If you are no longer interested in the benefits of 80C, invest in mutual funds.  The equities in mutual funds are the next generation of the Indian economy.  The market-linked units provide maximum benefits in case of returns. And if you are worried about the extra tax deduction of 50K, you can open an NPS. But in the long run, NPS will not provide you liquidity benefits. Even after the age of 60 years, you will have to leave 40% of the corpus for getting annuity or pension income. And this income comes under taxation.

It is better not to think about only 80C and tax deduction while choosing a savings scheme. And mutual funds are a gateway for instant benefit without the hazard of the longer lock-in period.