Which one is a better saving option – PPF or NSC

The Indian Ministry of Finance introduced the Public Provident Fund (PPF) in the year 1968 and it’s a tax-free saving scheme that is the interests, which are accumulated on the PPF are not subjected to any tax. Moreover, the amount you contribute to the PPF account is eligible for tax deduction. To instigate the idea of saving for the life after retirement amongst the general public of India, this scheme was introduced. It is one of the most efficient taxes saving instrument at the present time.

The National Savings Certificate (NSC) is a financial instrument which allows you to invest. You can invest as much as you want but there are certain denominations according to the government as it is a government instrument. These certificates attract tax saving benefits along with others. There is no upper limit of investment in these certificates. You can invest according to the tenure you choose and after that time period, you can withdraw the full amount with interest that is after maturity.

Key Facts of PPF

  • Account opening: You can open the PPF account from SBI branches and also other nationalized banks such as Canara Bank, Bank of Baroda and from some of the private banks like ICICI, Axis Bank which are near to your place of residence. Even if you don’t have an account in the specified bank, you can still open a PPF account in that same bank. You can also open the PPF account from head post office/branches or any nationalized bank that have the authorisation to open PPF accounts.
  • Number of accounts: Only one account can be opened in your name and then you can open another account with your child’s name but that doesn’t mean you will be eligible for the double tax benefit, you will only get the tax benefit on your account as your child is minor.
  • Ownership: The ownership of the PPF accounts lies with only the holder of the account and no other person can be the owner. But you can always appoint someone as your nominee of the account.
  • Contribution: The minimum and the maximum contribution of a PPF account is INR 500 and INR 1,50,000 in a year, respectively.
  • Return: The PPF accounts offer an interest rate which is really attractive and lucrative as it is more than any bank’s interest rate. The interest rate is 8.7% to 8.8% and it is compounded annually which makes it more lucrative.
  • PPF Tax benefitsThe PPF investment and the interest amount earned are completely tax-free, which is another PPF tax benefit. If you invest any amount up to INR 1.5 lac in a year in PPF, it is exempted from your income in that year under section 80 C of the income tax act. The interest you earn on the PPF in that year is also tax-free which makes this financial instrument one of the best tax saving instrument in the current scenario of the financial market.
  • Tenure: The minimum time period for which this investment is done is 15 years but you can anyway extend it to another 5 years.

Key Facts of NSC 

  • Account opening: You can only invest in NSC through Post office. You can apply from your nearby post office or you can visit the head post office in your city.
  • Number of accounts: For NSC certificates, you need to invest every time individually for every investment. For example, if you have invested INR 10,000 in an NSC certificate then if you want to add another INR 20,000 to it you have to apply again and invest in another NSC certificate.
  • Ownership: You can open either single account or joint account. If you open a joint account then you can share your ownership of the NSC.
  • Contribution: NSC certificates come in different denominations – INR 100, INR 500, INR 1,000, INR 5,000, and INR 10,000. If you want to invest INR 20,000, you can invest in 2 INR 10,000 NSC certificates or you can opt for other combinations too.
  • Return: The interest rate for NSC Issue VIII is 8.5% per annum while that for NSC Issue IX; it is 8.8% per annum.
  • NSC Tax benefits: The investment in NSC is exempted from tax u/s 80C but the interest you earn is taxable income. Any amount you invest in NSC is exempted from tax which is a huge NSC tax benefit. 
  • Tenure: The maturity of the NSC certificates is short and you can withdraw the amount after 6 years.

Better Saving Option Based on Key Facts

  • If you want to invest more than INR 1,50,000 in a year, choose NSC.
  • If you see the return, then PPF is better.
  • If you seek short-term maturity period then NSC is better whereas if you want the money at a later stage of your life then PPF is better.
  • According to tax exemption, PPF is way better as interest income in taxable under NSC.
  • If you see the ownership then for PPF you cannot have any other owners but for NSC, you can share the ownership.
  • NSC can only be bought from post office whereas PPF can be opened from SBI, other authorized nationalized banks, head post office etc.
  • Only one PPF account can be opened in one’s name whereas one can buy end number of NSC.

Conclusion

Both of the saving instruments save taxes and both earn high interest but your decision of investment must lie on your specific requirements and needs. You must analyze each of the key facts written above and then only make your decision.

Harjot Singh Narula

Harjot Narula is founder and CEO of ComparePolicy.com, an IRDAI approved insurance web aggregator focussed on selling online insurance for companies. Harjot has more than a decade of experience in software development and has also spent 5 years in US working for the mortgage and risk management industry.

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