Securing a financial future through a reliable, steady source of income is vital for retirement planning. The government provides several savings schemes that promise a stable income source and peace of mind post-retirement. Three such prevalent government-backed schemes are the National Pension System (NPS), Public Provident Fund (PPF), and Employee Provident Fund (EPF). They promise guaranteed returns and low risks that will benefit retirees and provide them with a financially independent life in the retirement phase. Let’s get into the details of three popular retirement schemes:
Public Provident Fund (PPF)
The PPF scheme was introduced to let individuals save money to fulfil their long-term financial needs, especially after retirement. This pension plan provides a reliable and safe investment opportunity with a fixed interest rate (currently 7.1%). The government determines this interest rate and reviews it periodically.
Benefits Of PPF
- The investments made in the PPF scheme are qualified for a deduction as per Section 80C of the Income Tax Act. The maximum limit is INR 1.5 lakh. Moreover, the interest earned is tax-free, and the maturity amount is tax-exempt.
- The tax-exempt status is one of the prominent benefits of this scheme. The contributions done by the individual and the returns earned are accountable for tax benefits.
- Note that the maturity period valid for a PPF account is 15 years. Individuals can prolong this period in the slabs of 5 years after maturity. The compound interest benefit allows account holders to build a considerable portfolio over time.
- Another aspect of making PPF one of the best retirement schemes is that you can open a PPF account in authorised banks and designated post offices throughout the country.
Employee Provident Fund (EPF)
EPF is a government-backed savings scheme, but you must know what is EPF in terms of savings, returns, and tax benefits. It provides financial security and retirement benefits to salaried employees in India. EPFO (Employees’ Provident Fund Organisation) oversees this scheme.
Benefits Of EPF
- The employee must contribute a fixed percentage of the salary each month. The corresponding contributions are made towards the employee’s EPF account.
- These contributions add over time and continue earning interest. The contributions are qualified for deduction per Section 80C of the Income Tax Act. The maximum deduction allowed is INR 1.5 lakh.
- The interest earned under this scheme is tax-free, and the withdrawals from an EPF account for a salaried employee with five years of constant service are tax-free.
- The interest earned on EPF is tax-free, and withdrawals from the EPF account after five years of continuous service are also tax-free. The applicable wage upper limit for cover under this scheme is INR 15000 per month.
National Pension System (NPS)
Individuals can build a retirement portfolio with NPS’s planned and regulated investment platform. The scheme allows individuals to contribute a share of their income towards their retirement fund. The contributions are then invested in government bonds, corporate debt, and equity.
Benefits Of NPS
- Tax deductions apply to contributions, per Section 80C of the Income Tax Act. You can claim a deduction of a maximum. 10% of your salary (applicable for salaried individuals) or 20% of gross income (applicable for self-employed individuals) under Section 80CCD(1). The maximum deduction eligible is INR 1.5 Lac in a financial year.
- NPS does not provide fixed returns; the returns are market-linked. Flexibility is one of the key perks of the NPS scheme. The individuals can choose fund managers and investment strategies per their financial objectives and risk tolerance.
- To estimate your retirement income, you must calculate the total available funds during the retirement years. This entails sources like investments, pensions, and savings.
PPF vs. EPF vs. NPS: Understanding The Differences
| Features | PPF | EPF | NPS |
| Eligibility | All Indian citizens, excluding NRIs | All Indian employees | Any individual |
| Investment options | Fixed returns | Fixed interest rate, contributions by employee & employer | Equity, Corporate Bonds, Government Securities |
| Tax benefits | Tax-free up to INR 1.5 Lakh | Tax-free up to INR 1.5 Lakh | Tax-free up to INR 1.5 Lakh |
| Applicable provision | Section 80C of the Income Tax Act | Section 80C of the Income Tax Act | Section 80C and Section 80CCD of the Income Tax Act |
| Maturity period | 15 years | On retirement or reaching age 58 | Till retirement or age 60 |
| Contribution required | Ranges from INR 500 to INR 1.5 Lakh | 12% of employee’s basic and dearness by employee and employer (each) | At least INR 1000 (Tier 1); no upper limit |
| Withdrawal options | Partial withdrawals under specific conditions after completion of 5 or 7 years | Partial withdrawals, under specific conditions before 5 years, subject to TDS deduction | Only 20% of the total amount before retirement |
| Rate of interest offered in financial year 2024-25 | 7.1% | 8.25% | 9-12% (vary as per the asset class) |
Which One To Choose Among PPF, EPF, and NPS?
Your employment status and financial status aid you in choosing between these government-backed retirement schemes.
| When To Choose PPF | When To Choose EPF | When To Choose NPS |
| EPF is an ideal scheme for salaried individuals working in organised sectors. It guarantees regular savings via compulsory contributions, and the interest rate is substantial i.e. 8.25%. EPF is best suitable for employees looking for long-term savings. | PPF scheme is suitable for self-employed individuals or those individuals who are not eligible for EPG. The government provides a fixed interest rate of 7.1% under this scheme. The offered interest is enough for low-risk tolerant investors seeking safe savings and tax benefits. | The NPS scheme is suitable for individuals looking for higher returns. Contrasting the PPF and EPF, NPS offered market-linked returns (traditionally ranging from 9% to 12%). These returns are conveyed through investment options across corporate debt, equity, and government bonds.NPS is an appropriate choice for risk-tolerant investors aiming to maximise their retirement portfolio. |
Secure Your Retirement Financially
With a carefully crafted retirement plan, you can determine when to retire and achieve financial freedom. These three schemes offer financial security, tax benefits, and regular returns. Retirees can use any of these retirement schemes to benefit from a financially balanced plan that meets their healthcare and lifestyle needs. Open a Demat account and simplify your retirement planning.
