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FD also has some disadvantages but PPF provides relief from income tax. The interest received on FD is taxed as per the tax slab of any person. But FD returns cannot always beat inflation. This means that the real value of your savings is at risk of falling over time. There is no guarantee from the government on FD. But PPF is guaranteed by the government.
Many taxpayers choose PPF for fixed income, tax-saving investments keeping in mind their retirement and retirement plans. Tax experts say that Public Provident Fund is best for those who are looking for long-term savings and safe investment options along with tax savings. Whereas FD gives more flexibility. This is a good option for investors. Overall, investment in PPF has to be made for a long period and this is not the case in FD.
Investment in PPF is eligible for tax deduction under Section 80C of the Income Tax Act. That means by investing in it your tax liability is reduced. But the interest and amount received on maturity of PPF is tax-free. This is an attractive scheme for the salaried class in terms of tax savings.
The current interest rate on PPF for the July-September quarter is 7.1 percent. But SBI is giving 6.50 percent interest on tax saving FD.
If you invest in FD at a low interest rate for a long period, you will suffer loss if the interest rate increases. For this reason, PPF gives better returns than a five-year tax-saving FD. FD interest rates remain constant throughout the investment period. At the same time, the interest rate of PPF is floating which can change every quarter.
There is benefit of compounding in PPF. This account matures in 15 years. After maturity, you can close the account by withdrawing the money or extend it for five years to continue investing.
If needed, you can make partial withdrawal from PPF. In the seventh year of investment, you can withdraw money for medical, emergency or needs like children's education or marriage. FD is a good option for short investment tenure. But PPF is best for long term.