NPS vs PPF

Worked Examples

Assume ₹1.5 lakh a year for 20 years. PPF is shown at its current 7.1%; the NPS columns are illustrations of a range, not a projection — the actual outcome depends entirely on market returns.

Rows three and four are the ones people underestimate. PPF’s rate is unexciting but the money is genuinely yours — accessible from year 5 and fully payable at maturity. NPS may well produce a larger number, but a fifth of it is converted into an annuity whether you want that or not, and getting out early is close to impossible.

Exit Rules and Tax — the part that changed

PFRDA rewrote these rules with effect from 16 December 2025, and the change is larger than most published material reflects. For a non-government subscriber — that is, anyone in the All Citizen Model or a Corporate NPS — exit at age 60, or after 15 years of subscription, now requires a minimum of 20% annuity and permits up to 80% as a lump sum. It used to be 40% and 60%. If the corpus is ₹8 lakh or less you may withdraw the whole of it. Between ₹8 lakh and ₹12 lakh you may take up to ₹6 lakh as a lump sum, with the balance paid out over at least six years or used to buy an annuity. A premature exit is far stricter: at least 80% must buy an annuity, with full withdrawal allowed only if the corpus is ₹5 lakh or less. Government sector subscribers are not covered by the change — they remain at 40% annuity and 60% lump sum under a separate regulation.

The most expensive detail on this page. PFRDA raised the permitted lump sum to 80%, but the income-tax exemption on an NPS lump sum still covers only 60% of the corpus. The tax law was not amended to match the pension regulation. So a non-government subscriber who takes the full 80% finds that the slice above 60% — a quarter of what they withdrew — is not covered by the exemption and is taxable at slab rate. Someone exiting with ₹1 crore and taking ₹80 lakh is looking at roughly ₹20 lakh of that withdrawal falling outside the exemption. Almost nothing written about the new 80% rule mentions this. Check the position that applies on the date you exit before you choose the higher lump sum.

On the way in, NPS offers ₹1.5 lakh under section 80CCD(1) and a further ₹50,000 under 80CCD(1B) — but both are old-regime only, and the new regime is now the default. The one deduction that survives into the new regime is 80CCD(2), your employer’s contribution, deductible up to 14% of basic plus dearness allowance. If you are salaried and on the new regime, routing NPS through your employer is the only version that carries a tax benefit at all. PPF is exempt-exempt-exempt: the interest and the maturity value are exempt under both regimes, and only the 80C deduction on the contribution is restricted to the old regime.

The Income-tax Act, 2025 commenced on 1 April 2026, so section numbers from the 1961 Act are no longer the live citation. The mechanism described above is what matters — confirm the current provision with the Income Tax Department or your adviser before withdrawing.

Advantages and Limitations

How to Decide

Work through these in order rather than picking on headline returns.

1. Which regime are you on? On the new regime, 80CCD(1) and 80CCD(1B) give you nothing. Only an employer contribution under 80CCD(2) does. That single fact decides the question for many salaried people.
2. Do you need the money before 60? If there is any real chance, PPF. NPS premature exit forces 80% into an annuity.
3. Are you already using the ₹1.5 lakh PPF cap? If retirement saving needs to go beyond it, NPS has no ceiling.
4. Do you want an annuity? Some people genuinely do — guaranteed income removes the risk of outliving the money. If you do not, the minimum 20% is a real cost.
5. Are you government sector? Then your NPS exit is still 60% lump sum and 40% annuity, not 80/20. Read the government rule, not the headlines.

Most people who can afford both use both — PPF as the guaranteed floor, NPS for equity growth and the employer contribution. They are not really competitors.