Detailed Analysis
PPF and NPS are India's two premier long-term retirement savings schemes, each with distinct advantages.
PPF enjoys EEE (Exempt-Exempt-Exempt) tax status — contributions, interest, and maturity are all tax-free. The current rate of 7.1% is guaranteed by the government and reviewed quarterly. With a 15-year lock-in (extendable in 5-year blocks), PPF is ideal for risk-averse investors who want absolute safety.
NPS provides exposure to equity (up to 75% allocation), offering higher growth potential. The extra Section 80CCD(1B) deduction of ₹50,000 (over and above 80C) makes it tax-efficient for high earners. However, 40% of the corpus must be used to buy an annuity at retirement, which is taxable as income.
Smart Strategy: Contribute ₹1.5 lakh to PPF (max 80C benefit) and ₹50,000 to NPS (extra 80CCD(1B) deduction). This gives you ₹2 lakh in total tax deductions, a guaranteed return component (PPF), and a growth component (NPS equity allocation).