Every salaried person looks for the safest way to save tax, earn stable returns, and grow their long-term savings. Two of the most popular choices are the Public Provident Fund (PPF) and Tax-Saving Fixed Deposits (FDs). Both fall under Section 80C of the Income Tax Act, but they offer different levels of returns, lock-in periods and tax benefits.
So which one actually helps you save more tax and build better wealth?
Here’s a simple breakdown.
✔ What Is PPF?
PPF is a long-term govt-backed savings scheme with:
15-year lock-in
Tax-free interest
Government-guaranteed returns
Section 80C deduction up to ₹1.5 lakh
Why Salaried Employees Prefer PPF
Completely risk-free
Interest earned is 100% tax-free
Ideal for retirement planning
Can be extended in 5-year blocks after maturity
✔ What Is a Tax-Saving FD?
A tax-saving FD is a 5-year fixed deposit offered by banks where your investment qualifies for Section 80C deduction.
Why It’s Popular
Shorter lock-in (5 years)
Guaranteed return
Easy to open through any bank
However, interest on FDs is fully taxable, reducing your effective returns.
PPF vs FD: Tax Saving Comparison
| Feature | PPF | Tax-Saving FD |
|---|---|---|
| Tax Deduction (80C) | Up to ₹1.5 lakh | Up to ₹1.5 lakh |
| Tax on Interest | Completely tax-free | Fully taxable |
| Lock-in Period | 15 years | 5 years |
| Risk | Zero (Govt-backed) | Very low |
| Returns (Avg) | 7%–8% | 6%–7% (taxable) |
| Early Withdrawal | Limited | Not allowed before 5 years |
| Ideal For | Long-term goals | Medium-term savings |
Who Saves More Tax — PPF or FD?
📌 Winner: PPF (by a big margin)
Here’s why:
1. PPF gives triple tax benefits (EEE status)
E = Exempt investment
E = Exempt interest
E = Exempt maturity amount
Every rupee you put in PPF grows tax-free.
2. FD interest is taxable under your income slab
If you fall in:
30% slab → FD returns drop significantly
20% slab → Still less than PPF
10% slab → FD returns lose value after tax
For most salaried employees, the taxable interest makes FD less efficient as a tax-saving tool.
3. Long-term compounding makes PPF grow faster
Since PPF interest is tax-free, compounding works much better over 15 years.
Example:
Investing ₹1.5 lakh/year for 15 years:
PPF maturity ≈ ₹40–45 lakh (tax-free)
FD maturity ≈ ₹32–35 lakh (taxable portion deducted)
PPF clearly wins for long-term wealth.
So Which One Should You Choose?
✔ Choose PPF if you want:
Maximum tax savings
Safe, long-term growth
Retirement planning
Zero tax on returns
✔ Choose Tax-Saving FD if you want:
Shorter lock-in (just 5 years)
Stable returns
Easy and quick investment
A mix of low-risk options
✔ Best Strategy for Salaried Families
Use both, but give higher allocation to PPF.
For example:
PPF: 70%
FD: 30%
This balances liquidity and long-term wealth creation.
FAQs
Q1. Which gives more tax benefits — PPF or FD?
PPF. FD interest is taxable; PPF interest is tax-free.
Q2. Can I withdraw money from PPF early?
Yes, from the 6th year under certain conditions.
Q3. What is the lock-in period for tax-saving FD?
5 years.
Q4. Can PPF returns change?
Yes, government revises rates every quarter but keeps them stable.
Q5. Is it safe to invest in PPF?
Yes, it’s backed by the Government of India.
Published on : 14th November
Published by : SMITA
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