NPS gives an extra ₹50,000 deduction under 80CCD(1B) over and above the ₹1.5L 80C limit. If you're in the 30% bracket, that's ₹15,600 in tax saved annually. PPF caps out at ₹1.5L under 80C.
Worked examples
Deepak, 30, investing ₹5,000/month until 60
Deepak invests ₹5,000/month in NPS (75% equity, assume 10% p.a. blended) for 30 years. At 60 he gets a corpus of ~₹1.13 crore. He can withdraw ₹67.6L tax-free and must annuitize ₹45.2L. His friend Lalita does the same in PPF at 7.1% — she gets ₹61L, all 100% tax-free with no annuity constraint. NPS wins on corpus, PPF wins on flexibility.
Frequently asked questions
What are the withdrawal rules for NPS?
At retirement (60+), you can withdraw 60% tax-free and must use 40% to buy an annuity. Partial withdrawals up to 25% of contributions are allowed after 3 years for specific purposes.
Can I open both NPS and PPF?
Yes, you can invest in both simultaneously. Many financial planners recommend this combination for retirement planning.