Bank FD Vs PPF Returns: Even as the RBI has been aggressively raising interest rates for the past few months in order to control inflation in India, the interest rates on loans and deposits are also on the rise in the country. Banks including HDFC Bank and PNB raised their interest rates on fixed deposits (FD), thus making the saving avenues more attractive than earlier. So, is FD offering more interest rates than the public provident fund (PPF)? Here’s a look:
PPF comes under the small savings schemes, of which, the interest rates are reviewed on a quarterly basis. The interest rate on the PPF has remained unchanged for the past few months. However, the interest rates on the bank FD have been rising consistently for quite some time, as the RBI has raised the key repo rate, the rate at which the RBI lends money to commercial banks, by 190 basis points to 5.90 per cent since May 2022.
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Returns on PPF
The interest rate on PPF also currently stands at 7.1 per cent. The investment avenue is safe as it is guaranteed by the government. On the tax front, the PPF is an investment option that enjoys the perks of the government’s triple tax exemptions — exempt-exempt-exempt (EEE). Under this, beneficiaries get tax exemptions thrice — during the time of investment, accrual, and withdrawal.
Under the EEE rule, PPF account holders get income tax exemptions of up to Rs 1.5 lakh per annum. Under Section 80C of the Income Tax Act, 1961, the interest rate earned each year is also exempt from any levy and one can also withdraw the matured amount without being taxed.
Returns on FD
Almost all banks have raised their interest rates on fixed deposits (FD) in the past few months. This has made FD an attractive saving avenue compared to earlier when the gap between the FD interest rate and the inflation rate was much higher.
This week, Punjab National Bank, HDFC Bank and Federal Bank have raised FD interest rates. HDFC Bank’s hike was the second this month itself. However, on the tax front, according to the Income Tax Act, 1961, interest on FDs is treated as ‘income from other sources’ and hence, is fully taxable. The FD interest earnings are included in your gross annual income, and the tax liability is estimated, following the prevalent tax laws.
PPF Vs Bank FD
The PPF is offering 7.1 per cent fixed interest rate and comes with the EEE tax exemption rule. On the other hand, HDFC Bank is now offering FD interest rates up to 6.25 per cent to the general public on a deposit tenure of 2 years 1 day to 3 years. PNB is offering up to 7 per cent to the general public on the 600-day tenure, whereas Federal Bank has the highest FD interest rate of 7.5 per cent for deposit tenure of 700 days.
