SCSS v/s PPF: Which one to choose
What's the story
In India, when it comes to preparing for retirement, two investment options stand out: the Senior Citizens' Savings Scheme (SCSS) and the Public Provident Fund (PPF).
While both are excellent choices, they offer unique advantages tailored to different financial goals and needs.
This article delves into their key features, interest rates, tax benefits, and withdrawal rules, helping you make an informed decision for your retirement savings.
Basics
Understanding SCSS: A senior's go-to
The Senior Citizens' Savings Scheme is available for individuals aged 60 and above. It provides an attractive 7.4% interest rate, which is paid quarterly to investors.
Investors can open an account with a minimum of ₹1,000 and a maximum of ₹15 lakh.
The scheme has a tenure of five years but can be extended for an additional three years.
Growth
PPF: A long-term wealth builder
The Public Provident Fund is a highly favored government-backed scheme aimed at long-term investors seeking wealth accumulation along with tax-saving advantages.
The prevailing interest rate is 7.1%, compounded annually.
An individual can contribute a minimum of ₹500 and up to ₹150,000 per annum in a financial year.
The lock-in period for PPF accounts is lengthy at 15 years, ensuring a long timeframe for wealth accumulation.
Savings
Tax benefits unveiled
While both SCSS and PPF provide tax benefits, there is a key difference in their treatment:
Interest income from SCSS is taxable at the investor's slab rate but is eligible for a deduction under Section 80C up to ₹150,000 per annum.
Conversely, PPF holds an EEE (Exempt-Exempt-Exempt) status—implying that the principal investment, interest income, and maturity proceeds are all exempt from tax.
Flexibility
Withdrawal rules simplified
SCSS permits early closure after one year with a penalty of 1% to 1.5% (based on the duration passed since opening the account).
On the other hand, partial withdrawals from PPF are allowed every year from the seventh financial year onward without any penalty. This provides more flexibility in times of financial emergencies.
Limits
Investment caps and considerations
Although both schemes come with investment limits—₹1.5 lakhs per year for PPF and ₹15 lakhs total for SCSS—you should strategically utilize these caps based on your broader retirement portfolio and income requirements post-retirement.
Allocating your resources across a mix of instruments can offer a balanced strategy for meeting your long-term financial objectives while effectively managing risks.