The INR 1.5 Lakh Game: Stop Buying Insurance for Tax Saving

Tax & Finance

5 min read

- By Siddharth Mishra

The INR 1.5 Lakh Game: Stop Buying Insurance for Tax Saving

Rohit's uncle told him in 2014 to buy an LIC endowment plan for “tax saving”. He pays INR 50,000 a year. In 2029, he will get roughly INR 8.5 lakh back - an effective return of ~4.8%. The same INR 50,000 in ELSS over 15 years, at 12%, would be INR 24 lakh. His uncle was not malicious; he was just selling insurance. Let us make sure you are not anyone's commission.

80C, in one sentence

The government lets you subtract up to INR 1.5 lakh from your taxable income each year if you put it into approved long-term instruments. EPF, PPF, ELSS, NSC, home loan principal, kids' school fees, some insurance premiums - they all share this INR 1.5L cap.

Two axes matter: return and lock-in

Think of every 80C option on a grid. ELSS has the shortest lock-in (3 years) and highest return potential (equity). PPF has the longest lock-in (15 years) but tax-free guaranteed returns (~7.1%). Endowment insurance has long lock-in (10-20 years) and low returns (~4-5%). Bad combo.

The NPS hack (INR 50,000 extra)

Section 80CCD(1B) gives you an additional INR 50,000 deduction on NPS contributions - above and beyond the INR 1.5L 80C cap. Most people never touch this slot. If you are in the 30% bracket, that is INR 15,000 of tax saved every year, on top of your 80C benefits. Note: this deduction is only available under the old regime.

All-endowment (5%)

INR 30 L

INR 1.5L/year for 15 years at 5%

ELSS + PPF mix (10% blended)

INR 53 L

Same INR 1.5L/year for 15 years

Optimize your mix

If you are salaried, EPF is already taking a bite (~INR 60k-INR 1L annually, auto-deducted). Fill the remaining INR 50k-INR 90k with a mix of ELSS (growth) and PPF (stability). Aggressive investors with long horizons tilt toward ELSS. Conservative or older investors lean on PPF. Play with the sliders below.

Loading calculator...

Avoid the March panic

Every March, bank managers call and push whatever product earns them the highest commission - usually endowment insurance. Do not make a rushed 80C decision in March. Plan in April, set up SIPs, and you will never need to sprint again.

Loading content

Up next

The HRA Loophole: How Much of Your Rent Is Actually Tax-Free?

Rohit's uncle told him in 2014 to buy an LIC endowment plan for “tax saving”. He pays INR 50,000 a year. In 2029, he will get roughly INR 8.5 lakh back - an effective return of ~4.8%. The same INR 50,000 in ELSS over 15 years, at 12%, would be INR 24 lakh. His uncle was not malicious; he was just selling insurance. Let us make sure you are not anyone's commission.

80C, in one sentence

The government lets you subtract up to INR 1.5 lakh from your taxable income each year if you put it into approved long-term instruments. EPF, PPF, ELSS, NSC, home loan principal, kids' school fees, some insurance premiums - they all share this INR 1.5L cap.

Two axes matter: return and lock-in

Think of every 80C option on a grid. ELSS has the shortest lock-in (3 years) and highest return potential (equity). PPF has the longest lock-in (15 years) but tax-free guaranteed returns (~7.1%). Endowment insurance has long lock-in (10-20 years) and low returns (~4-5%). Bad combo.

The NPS hack (INR 50,000 extra)

Section 80CCD(1B) gives you an additional INR 50,000 deduction on NPS contributions - above and beyond the INR 1.5L 80C cap. Most people never touch this slot. If you are in the 30% bracket, that is INR 15,000 of tax saved every year, on top of your 80C benefits. Note: this deduction is only available under the old regime.

All-endowment (5%)

INR 30 L

INR 1.5L/year for 15 years at 5%

ELSS + PPF mix (10% blended)

INR 53 L

Same INR 1.5L/year for 15 years

Optimize your mix

If you are salaried, EPF is already taking a bite (~INR 60k-INR 1L annually, auto-deducted). Fill the remaining INR 50k-INR 90k with a mix of ELSS (growth) and PPF (stability). Aggressive investors with long horizons tilt toward ELSS. Conservative or older investors lean on PPF. Play with the sliders below.

80C Portfolio Optimizer

Split INR 1.5L across 5 instruments. Project 15-year corpus.

EPF (auto-deducted)

8.25% FY25 rate - 8.3% expected, 5y lock-in

ELSS

Equity, short lock-in - 13.0% expected, 3y lock-in

PPF

Tax-free, sovereign - 7.1% expected, 15y lock-in

NPS (80C portion)

Till retirement - 11.0% expected, 30y lock-in

Endowment insurance

Usually poor returns - 5.0% expected, 15y lock-in

Total allocated

INR 1.50 L / INR 1.50 L

Blended return

9.6%

Avg lock-in

6.3 years

Projected 15y corpus

INR 50.62 L

Your mix beats an all-endowment plan by INR 16.63 L over 15 years.