NPS vs PPF: Public Provident Fund (PPF) and National Pension Scheme (NPS) are popular saving schemes among salaried people. Both the saving schemes serve similar purposes – financial security to the subscriber post-retirement. The two schemes have a similar functioning as well — investment at regular intervals in conjunction with compounding. However, NPS has become more popular ever since the Narendra Modi government provided an additional tax deduction of Rs 50,000 in the Budget 2015-16.
Both PPF and NPS have strict premature withdrawal rules. However, these investment plans can prove to be good long-term investing schemes.
Benefits of NPS and PPF accounts:
National Pension Scheme (NPS):
The scheme was kick-started in 2004, and is available for all the people in India who want to save money for life after retirement. 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.
The Tier 1 scheme is for all government employees. The employee contributes 10 per cent of dearness pay, basic pay and dearness allowance earned to the NPS account each month. The government also contributes the same amount to the account. For Tier 2 scheme each individual can open an account under this pension scheme and can make contributions to the same. They will, however, not receive additional contributions from the government.
Tax Benefits: Subscribers of the NPS scheme can get a maximum of Rs 2 lakh deduction in total, under the Income-Tax 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 per cent of such withdrawals.
Eligibility: People from age 18 to 60 years can open an NPS account. Also, NRIs are allowed to enjoy the NPS facilities.
Rate of returns: Subscribers will get 10 per cent to 12 per cent of return and it is dependent on the market situation, according to a report by BankBazaar.
Contribution: A subscriber needs to do a minimum contribution of Rs 6000. Interestingly, there is no cap on the maximum contribution.
Public Pension Fund (PPF):
Under this scheme, a minimum investment of Rs 500 and maximum of Rs 1.5 lakh per annum can be contributed into the account for a tenure of 15 years.
Tax Benefits: 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.
Eligibility: Only Indian citizens can open a PPF account. The account can also be opened in the name of a minor with either one of the parents as custodians.
Rate of returns: The rate of return is 8.60 per cent and is fixed.