PPF vs fixed deposit

The rates are closer than the outcomes

PPF has paid 7.1% since April 2020. Bank fixed deposits have paid somewhere in the same range for much of that period. On the headline number there is often little in it.

The outcomes differ anyway, because the two are taxed completely differently and locked up completely differently.

Tax is the whole argument

PPF is exempt at all three stages: the contribution qualifies for deduction, the interest is not taxed as it accrues, and the maturity amount is not taxed when it is paid out. Fixed deposit interest is added to your income and taxed at your slab rate every year, whether or not you withdraw it.

For somebody in the 30% band, a 7.1% PPF return is equivalent to roughly 10.1% on a taxable deposit. That gap is far larger than any difference in headline rate.

The catch: the deduction only helps under the old tax regime. Under the new regime, which is the default and is cheaper for most people now, 80C does nothing - so one of the three exemptions falls away.

Lock-in cuts both ways

PPF runs for fifteen years, with limited partial withdrawal from year seven and extension in five-year blocks after that. A fixed deposit can be broken, usually with a penalty of half a percent to one percent.

If the money might be needed, that flexibility is worth more than the tax difference. If it genuinely will not be, the lock-in is a feature rather than a cost - it is the reason PPF balances survive the decisions that would otherwise have spent them.

The limit

₹1,50,000 a year, across every PPF account you contribute to including a minor's. That caps PPF as a component of a portfolio rather than a place to hold everything, which is often the practical answer: fill the PPF limit and hold the rest elsewhere.

Related guides

• Old vs new tax regime in India
• All guides