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Investing

NPS vs PPF: Lock-in, Tax and Returns Compared

PPF pays a government-set 7.1% with a 15-year lock-in and tax-free maturity; NPS is market-linked and part of the corpus must buy an annuity.

VD

Written by Vikram Desai

Published 22 October 2026·6 min read

On this page8 sections
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PPF pays a government-set rate, 7.1% for July to September 2026, locks your money for 15 years and pays out tax-free. NPS returns follow the markets. At normal exit, up to 80% comes out as cash (60% for government staff), the rest must buy an annuity, and only 60% of the corpus is tax-free.

NPS vs PPF at a glance

Feature PPF NPS (Tier I, All Citizen Model)
Returns Fixed by government, reviewed quarterly; 7.1% for Jul–Sep 2026 Market-linked; no assured return
Where money goes Government small savings scheme Equity, corporate bonds and government securities through a pension fund
Minimum deposit ₹500 a year ₹500 to open; ₹1,000 a year
Maximum deposit ₹1,50,000 a year No upper limit
Lock-in 15 years from the end of the year of opening Until age 60 or 15 years, whichever comes first
Money at maturity or exit 100% in cash Up to 80% lump sum; at least 20% buys an annuity
Tax on maturity or exit Fully exempt 60% of corpus exempt; annuity income taxed
Deduction in new tax regime None Employer contribution only

Both schemes suit long horizons, so the choice turns on the rules below. Our guides to the PPF account and NPS cover how each works on its own.

How returns are set

PPF. The Public Provident Fund Scheme, 2019 sets the rate, and the government reviews it each quarter. Deposits and balances have earned 7.1% a year since 1 April 2020, and the rate is unchanged for July to September 2026. The rate for October to December 2026 is due around 30 September. Interest is worked out on the lowest balance between the close of the 5th and the end of each month. It is credited once a year, at the end of the financial year.

NPS. PFRDA states there is no implicit or explicit assurance of benefit, and returns depend on the investment choice you make. Under Active Choice, you can put up to 75% in equity and up to 100% in corporate bonds or government securities. Under Auto Choice, a life-cycle fund cuts equity as you age. Life Cycle 75, for example, holds 75% equity until 35 and falls to 15% by 55.

Since 1 October 2025, the Multiple Scheme Framework has let you hold several pension fund schemes under one account, with charges capped at 0.30% a year. Each scheme carries a 15-year lock-in, and you cannot switch between MSF schemes during it.

Lock-in and withdrawal

Need PPF NPS
Borrow Loan from the 3rd to the 6th year, up to 25% of an earlier balance No loan product; a partial withdrawal can repay a loan taken against a lien on NPS
Partial withdrawal Once a year from the 7th year After 3 years, up to 25% of your own contributions, for listed reasons; up to 4 times before 60
Early closure After 5 years, only for illness, higher education or moving abroad, with 1% less interest Premature exit any time: up to 20% as cash, at least 80% to an annuity, unless the corpus is ₹5 lakh or less
After lock-in Close, or extend in 5-year blocks Exit, or stay invested up to 85

At normal exit, a non-government NPS subscriber with a corpus of ₹8 lakh or less can withdraw all of it. Our pages on PPF withdrawal and loan rules and NPS withdrawal rules give the full detail.

The key difference is the annuity. PPF returns your whole balance as cash. NPS turns at least part of the corpus into a pension, which is taxed as income when you receive it.

Tax at entry, growth and exit

From tax year 2026-27, the Income-tax Act, 2025 applies. Returns for FY 2025-26 are still filed under the 1961 Act, where the same benefits sat in Sections 80C, 80CCD and 10.

Stage PPF NPS
Your contribution, old regime Within the ₹1,50,000 limit of Section 123 (old 80C) Within Section 123, up to 10% of salary or 20% of gross total income; plus an extra ₹50,000 under Section 124(3) (old 80CCD(1B))
Your contribution, new regime No deduction No deduction
Employer contribution Not applicable Deductible under Section 124(1) (old 80CCD(2)): 14% of salary in the new regime, and in the old regime for government employers; 10% for other employers in the old regime
Growth Not taxed Not taxed while invested
Exit Payments exempt under Schedule II Lump sum exempt up to 60% of the corpus; annuity pension taxed at slab rates

The new tax regime, the default under Section 202, allows only the employer-contribution deduction from this list. PPF deposits and your own NPS contributions share the ₹1,50,000 limit of Section 123. Only NPS gets the extra ₹50,000, and the same rupee cannot be claimed under both sections.

PFRDA now allows an 80% lump sum at normal exit for non-government subscribers, but the tax exemption still stops at 60%. The rest of the lump sum is taxable. If you are weighing the two regimes, try the old vs new regime calculator. For a large corpus or several accounts, a chartered accountant can check your tax.

Contribution limits

  • PPF: ₹500 to ₹1,50,000 a financial year, in multiples of ₹50, as a lump sum or in instalments. The cap includes deposits in a minor’s account that you run. One account per person; no joint accounts. If you skip the ₹500 minimum, the account is discontinued. You revive it with a ₹50 fee plus ₹500 for each missed year.
  • NPS: ₹500 to open and ₹1,000 a year to keep Tier I active, with no upper limit. PFRDA’s scheme page gives the joining age as 18 to 85. If you miss the minimum, the account is frozen until you contribute again.

Which rules fit which goal

ItemDetails
You want certainty and full access at maturity.PPF’s rate is set by the government, and the full balance comes back tax-free.
You want a pension income after 60.NPS is built for this, as part of the corpus must buy an annuity.
You want equity exposure for retirement.NPS allows up to 75% equity under Active Choice, more under MSF schemes. PPF has none.
You are in the old regime and have used the ₹1.5 lakh limit.Only NPS offers the extra ₹50,000 deduction.
You are in the new regime.Neither gives a deduction for your own money. Your employer’s NPS contribution is still deductible.
You may need money within 5 to 10 years.PPF allows loans and yearly partial withdrawals. NPS partial withdrawals are capped and limited to set reasons.

Many people hold both. Use the PPF calculator and NPS calculator to see how different contributions add up.

Frequently asked questions

Is NPS better than PPF?

Neither is better for everyone. PPF gives a government-set rate and fully tax-free cash at maturity; NPS offers market-linked growth but requires part of the corpus to buy a taxable annuity.

Can I invest in both NPS and PPF?

Yes. In the old regime, both count towards the ₹1.5 lakh Section 123 limit, and NPS can take a further ₹50,000 under Section 124(3).

Is NPS maturity tax-free like PPF?

Only partly. Up to 60% of the NPS corpus paid on exit is exempt, and annuity income is taxed. PPF maturity is fully exempt.

What is the PPF interest rate now?

7.1% a year for July to September 2026. The next quarter’s rate is due around 30 September 2026.

Which has a longer lock-in, NPS or PPF?

PPF runs 15 years from the end of the opening year. NPS runs until 60, or 15 years if earlier, so a young subscriber is locked in longer.

Can I get NPS tax benefits in the new regime?

Only for your employer’s contribution, up to 14% of salary. Your own contributions get no deduction.

Sources

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