Save income tax: PPF vs NSC

The financial year will end in just one week and if you are still looking for investment options to save income tax then you must have come across PPF and NSC. 

You can reduce up to Rs 1,50,000 from your total taxable income through section 80C of Income Tax Act. 

Tax Saving Mutual Fund scheme, also known as Equity Linked Savings Schemes or ELSS, Sukanya Samriddhi Account, Tax Saving Fixed Deposit are the most common options. 

There are two more investments options you can use to claim tax deduction of up to Rs 1.5 lakh under Section 80C. One is National Savings Certificate and another is Public Provident Fund.

Both the options are investment backed by the government hence it is safe to invest in them. At the face of it, both are low-risk, fixed-term products. 

Explaining both the mediums, Ajit Narasimhan, Category Head - Savings and Investments, BankBazaar.com, said, "The NSC is typically a short term savings option. The NSC has a lock-in period for five years. As opposed to this, the PPF has a longer lock-in of 15 years and can be extended by five years on maturity."

Once you open a PPF account, you need to invest at least Rs 500 every year to maintain it. You can make payments in as many as 12 instalments per year so long as the total investment does not cross Rs 1.5 lakh. 

The NSC, however, is a one-shot investment where you can invest as less as Rs.100 to as much as Rs.1.5 lakh at a time. Anything over Rs.1.5 lakh does not qualify for tax exemptions in either case.

The interest rates on both the products vary. For PPF, the current rate of interest in 8.1%. This is periodically reviewed by the government. For NSC, the interest is 8%, and it remains fixed throughout the term of the product.

The investments in PPF is completely exempt. In essence, you get a deduction of up to Rs.1.5 lakh when you invest under Section 80C, the interest earned every year is exempt from tax, and the entire amount at maturity (principal + interest earned) is also exempt from tax. With NSC, on the other hand, the return is taxed.

For instance, if you invest the maximum amount in a PPF, i.e. Rs. 1,50,000, your amount multiplies to approximately Rs. 45,00,000 after 15 years. And all that money is tax free, the online financial marketplace explained.  

However, if you expect some heavy expenses over the next five years, it would be advisable to opt for an NSC as the lock-down period is shorter, it added.

Depending on the need and the time period, choose your options carefully. In any case, keep investing!