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NPS vs PPF
When planning for retirement, two of the most reliable, government-backed options are the National Pension Scheme (NPS) and the Public Provident Fund (PPF). Both encourage disciplined savings and offer tax benefits, but they differ significantly in structure, returns, withdrawal rules, and risk profile. Understanding these distinctions will help you choose the most suitable option for your financial goals.
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- NPS vs PPF
What is the National Pension Scheme (NPS)?
The National Pension Scheme (NPS) is a government-backed retirement plan for Indian citizens aged 18 to 70. It allows individuals to contribute regularly and build a fund for their retirement. Investors can choose how their contributions are invested, including options like equities and government bonds. NPS provides tax benefits under Section 80CCD. Upon retirement, 60% of the corpus can be withdrawn tax-free, while 40% must be invested in an annuity to generate a regular pension. It is a common investment option for retirement savings.
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Your Pension Calculation
Total Investment
Returns Earned
Maturity AmountMaturity Amount split (Lumpsum & Pension)
60%
Lumpsum AmountAt the age of 60 Yrs
40%
Pension WealthAt the age of 60 Yrs
What is the Public Provident Fund (PPF)?
The Public Provident Fund (PPF) is a safe, long-term savings plan backed by the government. It helps people save money steadily with a fixed interest rate, which is tax-free. You can invest at least ₹500 and up to ₹1.5 lakh each year. The account has a 15-year lock-in period, making it ideal for building a retirement fund. PPF also offers tax benefits, helping reduce your taxable income under Section 80C.
Difference Between NPS and PPF
The key differences between NPS and PPF are summarised in the table below:
| Feature | NPS (National Pension Scheme) | PPF (Public Provident Fund) |
| Purpose | Retirement-focused pension scheme | Long-term savings and retirement scheme |
| Account Type | Tier I (mandatory, restricted withdrawal) and Tier II (optional, flexible withdrawals) | Single account type with lock-in for 15 years |
| Returns | Market-linked, historically 11% to 20% | Fixed 7.1% p.a. (FY 2025–26); compounded annually |
| Equity Exposure | Up to 75% (active or auto allocation) | No equity exposure |
| Withdrawal Rule | Restricted until 60 years for Tier I, partially allowed; Tier II is fully flexible | Partial withdrawal allowed after 5 years; full maturity after 15 years |
| Tax Benefits on Investment | Deduction under Section 80CCD (Rs. 1.5 lakh + Rs. 50,000 extra) | Deduction under Section 80C (up to Rs. 1.5 lakh) |
| Tax on Withdrawal | 60% lump sum tax-free at retirement; annuity income taxable | The entire maturity amount is tax-free |
| Premature Withdrawal | Allowed under strict conditions; partial withdrawal allowed | Allowed after 5 years, partial withdrawals, else lock-in |
| Fund Management | Choice of fund managers; portfolio flexibility | No fund manager; fixed rate managed by the government |
| Annuity Requirement | Mandatory to use 40% corpus for annuity at retirement | No annuity, lump sum paid at maturity |
| Risk Level | Market risk due to equity exposure | Low risk, government-backed fixed returns |
| Tenure | Till age 60, it can be extended up to 70 | 15 years minimum, extendable in 5-year blocks |
| Eligibility | Indian citizens (18–70 years), including NRIs | Only Indian residents and minors through guardianship |
| KYC Requirement | Mandatory at the time of registration | Required during account opening via bank/post office |
| Loan Facility | Loans as partial withdrawal (Tier I) | Loan up to 25% of the balance from the 3rd to the 6th financial year |
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Tax Benefits: NPS vs PPF
National Pension Scheme (NPS)
You can claim deductions under the following provisions:
- Section 80CCD(1):Deduction up to 10% of salary (or 20% for self-employed) within the ₹1.5 lakh cap of Section 80C.
- Section 80CCD(1B):An additional ₹50,000 deduction exclusively for NPS contributions. This is over and above the ₹1.5 lakh limit.
- Section 80CCD(2):Employer contributions up to 10% (or 14% for government employees) of salary are deductible. This is not subject to the ₹1.5 lakh limit.
Public Provident Fund (PPF)
PPF contributions qualify for deductions under:
- Section 80C:Up to ₹1.5 lakh annually. The interest earned and maturity amount are completely tax-free, making it an EEE (Exempt-Exempt-Exempt) investment.
Final Thoughts
Both NPS and PPF offer valuable benefits but serve different purposes. Choose NPS if you're looking for long-term market-linked growth and regular post-retirement income. Choose PPF if your priority is capital safety with tax-free, fixed returns. For a balanced approach, consider investing in both schemes to diversify your retirement portfolio.
FAQs
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Can I invest in both NPS and PPF simultaneously?
Yes, you can invest in both. Each has separate tax benefits under different sections of the Income Tax Act. -
Do both NPS and PPF offer online account management?
Yes. NPS offers full online management, including fund switches. Most banks and post offices now provide online access for PPF as well. -
Can NRIs invest in NPS or PPF?
NRIs can invest in NPS but cannot open a new PPF account. However, existing PPF accounts can continue until maturity. -
Is the maturity amount from both schemes tax-free?
PPF maturity is fully tax-free. For NPS, 60% of the corpus is tax-free, while the annuity income is taxable per your slab.
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*All savings are provided by the insurer as per the IRDAI approved insurance
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^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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Your Pension Calculation
Total InvestmentReturns EarnedMaturity AmountMaturity Amount split (Lumpsum & Pension)
60%
Lumpsum AmountAt the age of 60 Yrs
40%
Pension WealthAt the age of 60 Yrs
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