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Public Provident Fund (PPF) Vs National Savings Certificate(NSC) Comparison

Public Provident Fund and National Savings Certificate are two of the very secured saving instruments.

The NSC is a savings scheme established by the post-office while the PPF was generated by the central government in 1968. But both are very safe since they are supported by the government.

What is the Contribution?

The minimum amount one must contribute towards their PPF account in a year is Rs 500. The maximum one can put is Rs 70,000 per year. In case of NSC, the minimum contribution amount is Rs 100. There is no upper limit on investment. However, NSC is retailed in multiples of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. So, in case you wish to invest Rs 30,000, you will have to purchase three certificates of Rs 10,000 each.

What is the Return?

On the face of it, both provide an identical rate of return: 8% per annum. Or so it seems. The only difference is in the way it is calculated. PPF is compounded annually. NSC is compounded half-yearly (twice a year). Let’s say on April 1, 2013, you invested Rs 30,000 in PPF and the same amount in NSC. On April 1, 2014, your PPF account will have Rs 32,400 while your NSC will have Rs 32,448.

What are the tax implications?

Both these investments come under Section 80C. That means the investments made under this section are entitled for income deduction up to a maximum Rs 1,00,000. This is according to the principal investment made. With PPF, you need not pay any tax on the interest earned. However in case of NSC, income earned on interest is taxable at the respective slab rate of the individual. The interest accrued on NSC is taxable. But, the tax is deductible under Section 80C. Generally, it is best to declare accrued interest on NSC on an annual basis. So, over the span of six years, you could announce the interest income for each year. In such a scenario, it does not amount to a huge sum. In case, you do not declare the interest on accrual basis, then the entire interest earned (difference between the amount deposited and the maturity value) would gather in the year of maturity. You could then claim it under Section 80C but it would be a huge amount and would be taxable at the current applicable tax rate.

What is the tenure?

PPF’s maturity period is 15 years, but you can extend it for a block of five years. Let’s assume you open a PPF account when you are 21 years old. It matures when you are in your late 30s, when you may be earning well and may not require the money. In that scenario, you can go on with the account. Of course, there is a choice to withdraw the entire balance on maturity, that is, 15 years from the closing of the financial year in which you opened the account. So, if you opened it in FY 2014-15 (this financial year), you will be able to withdraw it 15 years later, starting March 31, 2015 (end of this financial year). That is April 1, 2030. If you extend it for five years after that, you continue to receive the rate of interest and can also make new deposits and seek tax benefit. NSC’s maturity period is very short — just six years from the date of investment.

How many accounts can I possess?

Once you open an NSC, you can’t continue to add to the same account. You will have to buy another. For example, you buy a NSC of Rs 30,000. In a year’s time, you wish to add another Rs 30,000. You cannot add it to this amount. You will have to buy another NSC. With PPF, you can have just one account. But it doesn’t make any difference as you have to make annual additions. Every year, you keep adding to it. However, if you have faith in the safety of the investment and want a guaranteed return of 8% per annum, you can open one in your child’s name. So you can have one account in your name and one in your child’s name. But this does not mean the tax benefit would quantify. The limit is the same — Rs 70,000, irrespective if it all goes in your account or in your account and your child’s. Let’s say you open an account for your minor child. You can deposit Rs 70,000 in your account and Rs 70,000 in your child’s account. But you will only get the tax benefit on the amount of Rs 70,000 only.

How many people share the ownership?

The PPF account cannot be owned by more than one person. You can nominate someone but the ownership cannot be shared with someone else. With NSC, you can share the ownership or you can hold it singly and nominate someone.

Where to open the account?

To open a PPF account, you can visit any State Bank of India branch. It doesn’t matter if you don’t have an account with them, you can still open a PPF account there. You can even ask your nationalized bank where you have an account if they are allowed to open PPF accounts. You can also approach the head post office in your vicinity. If that is not feasible, ask your nearby post office (selection grade sub post offices are allowed to do so). To buy an NSC, just approach any post office.

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