Which is Better NSC or PPF – Difference with Comparison

Difference Between NSC and PPF

Among the investments offering assured benefit returns, both Public Provident Fund (PPF) and National Savings Certificate (NSC) occupy top positions. But the next question is: How to decide between PPF and NSC? A detailed comparison should help you in taking the right decision.

What is the Contribution?

The minimum amount one can contribute towards their PPF account in a year is Rs 500, while the maximum one can put is Rs 1.5lakh per year. In case of NSC, the minimum contribution amount is Rs 100 and there is no upper limit on investment. However, NSC is retailed in multiples of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. So, in case you wish to invest Rs 30,000, you will have to purchase three certificates of Rs 10,000 each.

What is Return?

Both PPF and NSC offer attractive interest rate, which is 8.1% per annum and 8.0% per annum respectively. Moreover, in PPF, interest rate is compounded annually, while in NSC it is compounded half-yearly (twice a year). Let's say on April 1, 2014, you invested Rs 30,000 in PPF and the same amount in NSC. After a year, your PPF and NSC accounts will have Rs 32,610 & Rs 32,604 respectively.

What areTax Implications?

Both these investments come under Section 80C. It means investments made under this section are entitled for income deduction up to a maximum Rs 1,50,000. This is according to the principal investment made. With PPF, you need not pay any tax on the interest earned. However in case of NSC, income earned on interest is taxable at the respective slab rate of the individual. The interest accrued on NSC is taxable. But, the tax is deductible under Section 80C. Generally, it is best to declare accrued interest on NSC on an annual basis. So, over the span of six years, you could announce the interest income for each year. In such a scenario, it does not amount to a huge sum. In case you fail to not declare the interest on accrual basis, then the entire interest earned (difference between the maturity value and the amount deposited) would gather in the year of maturity. You could then claim it under Section 80C but it would be a huge amount and would be taxable at the current applicable tax rate.

What is Tenure?

PPF's maturity period is 15 years, but you can extend it for a block of five years. Let's assume you open a PPF account when you are 21 years old. Then it will mature when you will be in your late 30s, when you may be earning well and may not require the money. In that scenario, you can go on with the account. Of course, there is a choice to withdraw the entire balance on maturity, that is, after 15 years, from the closing of the financial year in which you opened the account. So, if you opened it in FY 2015-16 (this financial year), you will be able to withdraw it 15 years later, starting March 31, 2016 (end of this financial year). That is April 1, 2031. If you extend it for five years after that, you will still receive the rate of interest and start making new deposits and enjoy tax benefit. NSC's maturity period, as compared to that of PPF, is very short -- just 5 years from the date of investment.

How Many Accounts can I Possess?

Once you open an NSC account, you can't continue to add to the same account. You will have to buy another. For example, you buy a NSC of Rs 30,000. In a year's time, you wish to add another Rs 30,000. You cannot add it to this amount. You will have to buy another NSC. With PPF, you can have just one account.

Every year, you keep adding to it. However, if you have faith in the safety of the investment and want a guaranteed return of 8.7% per annum, you can open one in your child's name. So you can have one account in your name and one in your child's name. But this does not mean the tax benefit would quantify. The limit is the same -- Rs 70,000, irrespective of whether it all goes in your account or in your child’s account. Let's say you open an account for your minor child. You can deposit Rs 70,000 in your account and Rs 70,000 in your child's account. But you will only get tax benefit on the amount of Rs 70,000 only.

How Many People Share the Ownership?

The PPF account cannot be owned by more than one person. You can nominate someone but the ownership cannot be shared with someone else. With NSC, you can share the ownership or you can hold it singly and nominate someone.

Where to Open the Account?

To open a PPF account, you can visit any State Bank of India branch. It doesn't matter if you don't have an account with them, you can still open a PPF account there. You can even ask your nationalized bank where you have an account if they are allowed to open PPF accounts. You can also approach the head post office in your vicinity. If that is not feasible, ask your nearby post office (selection grade sub post offices are allowed to do so). To buy an NSC, just approach any post office.