No, TDS is levied on the interest amount credited to a person’s bank account upon investment in NSC. However, if the deposit amount crosses ₹ 1.5 Lakhs within a year, the rest of the investments come under the income tax bracket.
What is the Difference Between NSC and PPF?
Both PPF and NSC have gained tremendous popularity among Indians due to their assured returns. However, many people seem confused regarding which one will better suit their portfolio rather than which should get preference over the other.
As you may feel attracted by their highly-rewarding features, it is necessary to know about these schemes in general before picking an instrument to achieve your financial goals. So, here is everything about NSC vs PPF that a beginner must know to ensure the utmost safety of their resources.
What Is a National Savings Certificate?
The NSC or National Savings Certificate is a centrally backed scheme regulated by the post office. If you intend to invest in an NSC scheme, you have to maintain an account with a minimum investment of ₹ 1,000 annually. For any amount higher than this, you can deposit cash denominations in multiples of ₹ 100.
An NSC scheme features a lock-in period of 5 years. Though you cannot hold two NSC plans simultaneously, you can repurchase a new scheme after the 5-year window of the previous scheme expires. Once you buy the certificate at a quoted rate, the interest remains the same for the entire tenure. The current interest rate is 6.8% per annum which gets compounded every fiscal year.
What Is a Public Provident Fund?
PPF has gained popularity among investment-minded Indians as it acts both as a wealth-building and tax-saving option. You can stay assured of returns as the deposited amount is invested in safe places backed by the Indian Government.
Unlike a short lock-in period of 5 years in the case of NSC, PPF comes with an extended maturity window of 15 years. After this tenure is over, you may prolong your investments for another five years at a time or simply withdraw the entire fund. Though the annual investment cap cannot exceed ₹ 1.5 Lakhs for a PPF account holder, the whole return comes under tax exemption as per Section 80C of the IT Act.
What Is the Difference Between NSC and PPF?
It would be beneficial for you to go through this tabular comparison to develop a clear idea about NSC vs PPF.
An annual interest rate of 6.8% gets compounded annually on the accrued sum.
PPF account holders currently enjoy an interest of 7.1% per annum on their investments.
Lock-in period of the scheme is 5 years.
Lock-in period for a PPF scheme is 15 years.
The interest income under an NSC scheme is taxable.
Both the principal amount and the interests accumulated over the tenure entirely fall under tax exemption.
There is no upper limit to annual investments for an NSC scheme.
You are not eligible to invest more than ₹1.5 lakhs in a year in your PPF account.
Post offices solely regulate this centrally backed scheme.
Both banks and post offices across India offer PPF account opening facilities.
What Are the Benefits of Investing in NSC?
You can experience the following investment benefits if you buy a National Savings Certificate:
- Assured returns await you after a lock-in period of 5 years, provided you have deposited the minimum balance for each year.
- You can maintain an active NSC status with only ₹1,000 each year. On the other hand, there is no upper limit to this contribution.
- Up to ₹ 1.5 Lakhs worth of investment in an NSC annually can be considered for tax exemption. For that, you must apply for tax deduction abiding by the regulations of Section 80C of the 1961 IT Act.
- Some banks provide credit facilities against NSC schemes. Thus you can reach out to them, offer your NSC as collateral, and avail loans.
Investing through NSC is risk-free and uncomplicated. All you need to do is visit a post office and fill out the application form attaching the required documents.
What Are the Benefits of Investing in PPF?
A wide collection of benefits make PPF a popular investment instrument. Here, we have discussed them in detail:
- Public Provident Fund offers the same benefits whether you maintain an account with a bank or post office. The central government uniformly regulates the funds of the PPF account holders. Therefore, the returns do not get affected by the performance of the secondary market.
- You have to deposit only ₹ 500 in a year to maintain an active PPF account. A monthly deposit can be as low ₹ 50, and you cannot exceed more than 12 instalment payments in a whole calendar year.
- Upon completion of 5 years, you may partially withdraw your PPF funds.
- Banks offer loans against PPF holdings for up to 25% of the deposited amount. To avail of this benefit, you have to apply for a loan between the 3rd and 6th year of the tenure.
- The maturity amount is eligible for tax exemption as per Section 80C of the Income Tax Act.
Which Is Better NSC or PPF?
Both are safe investment options that suit the nature of those who prefer low-risk investments. As you get assured benefits from these instruments in today's high inflation-hit market, they are both worth considering.
Based on your goals, one of these schemes can be better for you. For instance, if you feel confident about generating sufficient returns from the stock market, then you can play safe with NSC investments so that they contribute reasonably to your mid-term goals.
On the other hand, if you are planning for your child’s higher education or buying a new house by the time you reach retirement age, then you can opt to invest in a bank or post office PPF.
The motive of this discussion is to stress that both of these investments, if incorporated together wisely, can provide a boost to your investment portfolio. Hence, after assimilating the key points of NSC vs PPF, it is crucial to spot their advantages and utilise them to the best of your interests.
FAQs on NSC vs PPF
The NSC demands at least ₹ 1,000 yearly for five years, during which you cannot withdraw the accrued funds. Either you may opt for both monthly deposits as well as lumpsum payments.
After your PPF account ages 5 years, you can withdraw accumulated funds once a year. However, this withdrawal sum cannot exceed the account balance recorded at the time of tenure extension after 5 years.
The relatively prolonged lock-in period of 15 years is considered by many to be a disadvantage. Moreover, NRIs and HUFs are not allowed to open any PPF account. Finally, a person can never open more than one PPF account except if they maintain a joint account with a minor.
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- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
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