NPS vs PPF: Which one helps you save more money for future

NPS vs PPF: Which one helps you save more money for future

Whenever it comes to saving for retirement, Public Provident Fund (PPF) and Provident Fund (PF) are the first two things which come to the mind of a salaried person. However, the National Pension Scheme (NPS) has been gaining a lot of popularity among salaried people after the Narendra Modi government provided an additional tax deduction of Rs 50,000 in Budget 2015-16. NPS has two types of accounts: Tier 1 and Tier II. On one hand, Tier 1 account is non-withdrawable until the subscriber turns 60, while on the other hand, under Tier II account a subscriber can voluntarily withdraw funds from the account.

What is the difference between PPF and NPS:

Who can invest in the schemes?

A PPF account can be opened by anyone. A minor account can also be opened under PPF. However, an NPS account can only be opened by people of the of 18 or above and less than 60. NRI’s can also open an NPS account. However, they cannot open a PPF account.

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The maturity period for a PPF account is 15 years and a subscriber can extend the term in the multiples of five once the account matures. However, the time period for NPS is not fixed. A depositor can contribute to the NPS account until s/he turns 65. The tenure can be extended up to 70 years of age with an option to invest in the account.

Tax benefit:

NPS subscribers can get a maximum of Rs 2 lakh deduction in total, according to the Income-tax (I-T) Act. NPS offers tax saving at the first two stages of contribution and interest accrual, but withdrawals are taxable. The lumpsum withdrawal in NPS will be exempt up to 40 percent of such withdrawals. PPF enjoys an EEE or ‘exempt, exempt, exempt’ status, where the amount you contribute (up to Rs. 1.5 lakh), the return you get and the maturity amount, all are tax exempt.

Investment options:

In a PPF account, a subscriber has to contribute a minimum of Rs 500 annually with the maximum limit set at Rs 1,50,000. A maximum 12 contributions per year are allowed in PPF accounts. As for NPS, the minimum contribution is Rs 6,000. There is no maximum limit for contribution, but it cannot exceed 10 per cent of the depositor’s salary.

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