SBI Deposit Schemes: Public Provident Fund National Pension System Compared

NDTV Profit Team

15 Nov 2018, 10:39 PM IST

NPS and PPF schemes are aimed at providing financial security to the subscriber during retirement

State Bank of India (SBI), the country's largest lender, offers a host of services to its customers. National Pension System (NPS) and PPF (Public Provident Fund) accounts are two retirement planning-focused instruments provided by the lender under its personal banking portfolio. A PPF account provides an investment avenue with decent returns coupled with income tax benefits, according to SBI's corporate website - sbi.co.in. A National Pension System (NPS) account provides social security to the citizens. It is administered and regulated by Pension Fund Regulatory and Development Authority (PFRDA).

Here are five things to know about State Bank of India's PPF account and its NPS account:

1. Eligibility

According to SBI, individuals in their own name as well as on behalf of a minor can open PPF account at any branch. As per extant instructions, opening of PPF accounts in the name of Hindu undivided family is not permitted. Meanwhile, an NPS account can be opened by individuals between 18 and 65 years of age.

2. Quantum of contribution

A minimum of Rs 500 subject to a maximum of Rs. 1,50,000 per annum can be deposited in a SBI PPF account. The amount can be deposited in lump sum or in a maximum of 12 installments per year. An NPS account can be maintained at a minimum contribution of Rs. 6,000 a year. At the same time, 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, said SBI.

3. Maturity

The original duration of SBI's PPF account is 15 years. However, 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.

4. Interest rates

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. The interest rate on NPS contribution is dependent on the pension fund manager (PFM) the account holder chooses.

5. Tax benefits

Under SBI's 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. At the same time, the tier 1 NPS account offers tax benefits while the tier 2 NPS account doesn't offer any such benefit.