Long-Term Lock-in Investment Schemes in India

In the quest for financial security and tax efficiency, Indian investors often turn to long-term investment schemes with lock-in periods. These instruments not only instill discipline but also offer stable and in some cases, tax-free returns. However, since the introduction of the New Tax Regime in FY 2020–21, the availability of tax deductions has changed significantly.

This article provides a comprehensive overview of popular lock-in schemes in India, clearly indicating whether their tax benefits apply under the Old Tax Regime, the New Regime, or both.

1. Public Provident Fund (PPF)

  • Lock-in Period: 15 years
  • Returns: ~7.1% per annum (compounded annually, reviewed quarterly)
  • Risk: Very Low (Government-backed)
  • Withdrawals: Partial after 5 years; full only after 15 years
  • Taxation:
    • Old Regime: Eligible for 80C deduction up to ₹1.5 lakh
    • New Regime: No 80C deduction, but interest and maturity remain tax-free

Verdict: Still excellent for long-term, tax-free savings — even in the New Regime — though you lose the deduction benefit.

2. National Savings Certificate (NSC)

  • Lock-in Period: 5 years
  • Returns: ~7.7% p.a. (compounded annually but paid at maturity)
  • Risk: Low (Post Office-backed)
  • Withdrawals: Not allowed before maturity except in death cases
  • Taxation:
    • Old Regime: Eligible under Section 80C
    • New Regime: Not eligible for deduction
    • Interest Taxability: Interest is taxable, but reinvested interest qualifies for 80C under Old Regime

Verdict: Effective only under the Old Regime. Less appealing under New Regime due to taxable interest.

3. Sukanya Samriddhi Yojana (SSY)

  • Lock-in Period: Until girl turns 21 (or 18 for marriage)
  • Returns: ~8.2% (as of July 2025)
  • Eligibility: Girl child under age 10
  • Withdrawals: Partial at 18; full at 21 or marriage
  • Taxation:
    • Old Regime: 80C deduction
    • New Regime: No deduction
    • Interest and Maturity: Fully tax-free in both regimes

Verdict: One of the best EEE (Exempt-Exempt-Exempt) schemes — still useful in New Regime despite no deduction.

4. 5-Year Tax-Saving Fixed Deposit (Bank FD)

  • Lock-in Period: 5 years
  • Returns: 6%–7.5% (varies by bank)
  • Withdrawals: Not allowed prematurely
  • Taxation:
    • Old Regime: 80C deduction up to ₹1.5 lakh
    • New Regime: No deduction
    • Interest Taxability: Fully taxable

Verdict: Not attractive under New Regime due to fully taxable returns and no deduction.

5. Senior Citizen Savings Scheme (SCSS)

  • Lock-in Period: 5 years (extendable by 3)
  • Returns: ~8.2% p.a. (quarterly payout)
  • Eligibility: 60+ years (or 55+ with superannuation)
  • Taxation:
    • Old Regime: 80C deduction
    • New Regime: No deduction
    • Interest Taxability: Fully taxable

Verdict: Good option for retirees, but less tax-efficient under New Regime.

6. Equity Linked Savings Scheme (ELSS)

  • Lock-in Period: 3 years (shortest among 80C options)
  • Returns: Market-linked (8%–15% historically)
  • Risk: Moderate to High
  • Taxation:
    • Old Regime: 80C deduction
    • New Regime: No deduction
    • Gains Taxability: LTCG over ₹1 lakh taxed at 10%

Verdict: Popular among young investors — loses appeal under New Regime unless you’re investing purely for returns.

7. National Pension System (NPS)

  • Lock-in Period: Till age 60
  • Returns: 8%–10% (market-linked)
  • Taxation:
    • Old Regime: 80C + additional ₹50,000 under 80CCD(1B)
    • New Regime: No 80C, BUT Additional ₹50,000 under 80CCD(1B) is still allowed
    • Maturity: 60% tax-free, 40% used to buy annuity (taxable when paid)

Verdict: One of the few schemes still offering tax deduction (₹50,000) even under the New Regime.

8. ULIPs (Unit Linked Insurance Plans)

  • Lock-in Period: 5 years
  • Returns: Market-linked
  • Taxation:
    • Old Regime: 80C deduction
    • New Regime: No deduction
    • Maturity: Tax-free only if annual premium ≤ ₹2.5 lakh

Verdict: Blurred lines post-Budget 2021; not ideal for pure investment.

Summary Table: Tax Benefits Under Each Regime

SchemeLock-inOld Regime (80C)New RegimeInterest/Maturity
PPF15 yrsYesNoTax-free
NSC5 yrsYesNoTaxable
Sukanya Samriddhi~21 yrsYesNoTax-free
Tax-Saving FD5 yrsYesNoTaxable
SCSS5 yrsYesNoTaxable
ELSS3 yrsYesNoLTCG Tax
NPSTill 60Yes + ₹50k CCD1B₹50k CCD1BPartial taxed
ULIP5 yrsYesNoConditions Apply

Final Thoughts

While the New Tax Regime simplifies income tax filing with lower slabs and no deductions, it significantly impacts the attractiveness of long-term tax-saving instruments. Here’s what you should keep in mind:

Best for New Tax Regime:

  • PPF and Sukanya Samriddhi (for their tax-free nature)
  • NPS (still allows ₹50,000 extra deduction under 80CCD(1B))

Best for Old Tax Regime:

  • NSC, SCSS, Tax-Saver FDs, ELSS, PPF (to get full 80C benefit)

Avoid in New Regime:

  • Tax-Saving FDs and NSC — as they become fully taxable with no deduction

Conclusion

Choosing the right tax-saving investment is not just about returns — it’s about where you stand in the tax regime. Always align your financial goals, tax bracket, and risk appetite with your investment decisions.

If you’ve opted into the New Tax Regime, focus more on returns and liquidity. If you’re under the Old Tax Regime, make full use of 80C by selecting a mix of lock-in schemes that align with your needs.

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