PPF (Public Provident Fund) account and National Pension System (NPS) account offer financial security to subscribers at a later stage of life. According to SBI's corporate website- sbi.co.in, PPF account provides an investment avenue with decent returns coupled with income tax benefits. National Pension System (NPS) which is administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA) provides social security to all citizens of India, the lender noted. A significant difference between the two lies in greater flexibility offered to the NPS subscribers, and the scope of making more money by virtue of its higher exposure to equity instruments.
Here are key things to know about National Pension System (NPS) account and PPF (Public Provident Fund) account as mentioned by SBI:
According to SBI, the rate of interest of PPF account is determined by central government on quarterly basis. At present the rate of interest for a PPF account is 8 per cent per annum. Interest is calculated on the minimum balance (in PPF Account) between 5th day and end of the month and is paid on March 31 every year.
Meanwhile, the interest rate on NPS contribution is dependent on the pension fund manager (PFM) the account holder chooses
A minimum of Rs 500 subject to a maximum of Rs 1,50,000 per annum can be deposited in a PPF. The amount can be deposited in lump sum or in a maximum of 12 installments per year. Meanwhile, an NPS account can be maintained at a minimum contribution of Rs 6,000 a year.
NPS offers two types of accounts: Tier 1 and Tier 2. Subscribers must make a minimum contribution of Rs 1,000 per annum for the tier 1 account. For the tier-2 account of NPS, there is no minimum requirement of contribution, according to SBI's website.
The original duration of SBI's PPF account is 15 years. Thereafter, on application by the subscriber, it can be extended for 1 or more blocks of 5 years each, as mentioned on SBI's portal.
NPS has a longer lock-in than PPF account and the corpus stays locked-in till the age of 60 years. Withdrawal before 60 is also allowed but in that case at least 80 per cent of the corpus ought to be allocated to annuity, which is a tax-free withdrawal.
Under PPF account, income tax benefits are available under Section 88 of Income Tax Act. Interest income is totally exempt from Income Tax. Amount outstanding to the credit is fully exempted from Wealth Tax also.
Meanwhile, the Tier 1 NPS account offers tax benefits while the Tier 2 NPS account doesn't offer any such benefit.