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National Pension System Vs. Public Provident Fund

National Pension System (NPS) and Public Provident Fund (PPF) are long-term tax saving investment opportunities. NPS is a government initiative aimed at providing retirement income solutions through market based returns. Anyone who invests in NPS has a unique Permanent Retirement Account Number (PRAN) registered to their name. PPF, also a government initiative is another long tenure investment scheme with the opportunity of several small savings at specific intervals.

Understanding long term saving schemes NPS & PPF

Aspects for Comparison of NPS and PPF

Despite certain similarities, there are major differences between the two investment options which are listed below:

Eligibility Criteria

NPS account can be opened by anyone above the age of 18 years till the age of 60. For a PPF fund, there is no minimum age limit since it can also be opened for a minor with one of the parents signing as a custodian. Only Indian residents are eligible to open a PPF account whereas both NRIs and Indian residents can open an NPS account.

Investment Amount

Under Section 80C of the Income Tax Act, an investor can get tax deduction on PPF investment. For anyone holding NPS account, an investor gets tax deduction up to 10% of the gross total income or the investment amount, whichever is lower, under Section 80 CCD(1) of the Income Tax Act. Furthermore, under Section 80 CCD (1B) additional deduction of INR 50,000 is also applicable on investment in NPS (applicable from assessment year 2016-17). This provides a tax deduction opportunity up to 2 lakhs, post which investors cannot claim further tax deduction in their investments.

Account Maturity

A PPF matures at 15 years but there is a partial withdrawal option from 7th year onwards. Once your PPF matures, three options are available:

  1. You can either withdraw the full invested amount,

  2. Extend PPF for five years without any additional contribution, or

  3. Extend it for 5 years but with a regular investment.

The NPS account matures once the individual turns 60 years old. At that point, individuals can obtain a tax saving opportunity of 40% of the amount received from the NPS account closure (w.e.f. AY 2017-18).

All of these above points provide a clear distinction of the benefits offered by an NPS and a PPF. A PPF is a more flexible option in terms of the investment amount and tenure, however, it is also evident that if you are looking at long term investment with steady returns, NPS is the ideal retirement savings option.

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