# Can you invest in both PPF and NPS, and how is each taxed?

Source: https://koshex.com/blog/can-you-invest-in-both-ppf-and-nps-for-tax-free-returns · Published 6 December 2025 · 10 min read

Yes, you can invest in both PPF and NPS at the same time. In the old tax regime they share one ₹1,50,000 deduction under section 123, NPS adds up to ₹50,000 more, and the new regime gives neither a deduction. PPF payouts are tax-free; NPS is tax-free only up to 60% of what is paid at exit.

## Key takeaways

- You can hold a PPF and an NPS account at the same time and pay into both in the same year.
- In the old regime, PPF deposits and your own NPS contribution draw on the same ₹1,50,000 limit under section 123. Only NPS adds up to ₹50,000 more under section 124(3).
- In the new regime, neither PPF deposits nor your own NPS contribution gives a deduction; an employer's NPS contribution still does.
- PPF payouts are exempt from tax. NPS is tax-free only up to 60% of what is paid at exit, and a pension from it is taxed as income.

Yes, you can hold a PPF account and an NPS account at the same time, and pay into both in the same year. What trips people up is the tax deduction. In the old tax regime, your PPF deposits and your own NPS contribution draw on the same ₹1,50,000 limit under section 123 (the old Section 80C). Only NPS gets up to ₹50,000 more. In the new regime, neither gives a deduction. And when the money comes out, the two are taxed very differently.

## Can you invest in both PPF and NPS?

Yes. Nothing in either scheme's rules stops you from holding both, and you can pay into both in the same year.

PPF (Public Provident Fund) is a provident fund set up by the Central Government. You open it yourself, and you must be a resident citizen of India. NPS (National Pension System) is a pension account open to Indian citizens aged 18 to 85, resident or non-resident, and to Overseas Citizens of India. You need a completed KYC (Know Your Client) identity check to open one.

The two behave differently. NPS returns are market-linked: your money is invested in shares, corporate bonds and government securities in the mix you choose, or in an age-based mix if you pick auto choice. No return is fixed. PPF earns whatever rate the government notifies for each quarter.

## How do PPF and NPS share the tax deduction?

Your PPF deposits and your own NPS contribution count towards the same ₹1,50,000 under section 123 (the old Section 80C). This applies in the old tax regime only. A deduction is an amount you subtract from your income before tax is worked out. The new tax regime is the default under the Income-tax Act, 2025, and it does not allow the section 123 deduction; the old regime does.

Inside that limit, your own NPS contribution counts up to 10% of your salary if you are an employee. If you are not, the cap is 20% of your gross total income, which is your income before these deductions are taken off.

NPS alone has a second allowance. Section 124(3), which replaced 80CCD(1B), allows up to ₹50,000 over and above section 123, in the old regime only. You cannot claim the same amount twice, once under each.

### A worked example

Shalini is 38, a chartered accountant in private practice in Indore. She is in the old regime, her gross total income is ₹12,00,000, and she already puts ₹1,50,000 a year into PPF.

Being self-employed, her NPS cap inside section 123 would be 20% of her income, which is ₹2,40,000. But section 123 allows ₹1,50,000 in total across everything, and PPF has used all of it.

Say she also puts ₹1,00,000 into NPS. None of it fits inside section 123. ₹50,000 counts under section 124(3). The other ₹50,000 gets no deduction at all.

Her total deduction is ₹2,00,000. After the ₹2,00,000 comes off, her income is ₹10,00,000. In the old regime, income above ₹10,00,000 is taxed at 30%, so all ₹2,00,000 would otherwise have been taxed at that rate.

Add 4% cess (an extra 4% charge on the tax). Surcharge, an extra charge on the tax once total income passes ₹50 lakh, does not apply to her. The deductions save ₹62,400: ₹46,800 on the ₹1,50,000 and ₹15,600 on the ₹50,000. In the new regime the same deposits save nothing.

So Shalini's second product added ₹50,000 of deduction, not ₹1,00,000. Only NPS's extra allowance sits outside section 123. Our guide to [deductions under sections 80C, 80CCC, 80CCD and 80D](https://koshex.com/blog/deductions-under-section-80c-80ccc-80ccd-and-80d) lists the other items. [PPF, ELSS and NPS for tax saving](https://koshex.com/blog/which-one-is-better-for-tax-saving-ppf-elss-vs-nps) compares the three.

### What about the new tax regime?

In the new regime, neither PPF deposits nor your own NPS contribution gives a deduction. An employer's NPS contribution still does, up to 14% of your salary in that regime.

## How do PPF and NPS differ?

PPF pays a rate the government sets each quarter, 7.1% for 1 October to 31 December 2026, and runs for 15 years. NPS is invested in shares and bonds and has no fixed return. A non-government subscriber's normal exit is at 15 years of subscription or age 60, whichever comes first.

The table below covers a non-government NPS Tier I account. The PPF rate is notified for each quarter, so check the current quarter before relying on the figure.

|  | PPF | NPS (non-government, Tier I) |
| --- | --- | --- |
| Who can open | Resident citizens of India | Citizens aged 18 to 85, resident or not, and OCIs, with KYC |
| How the return is set | Rate notified for each quarter: 7.1% for 1 October to 31 December 2026 | Market-linked; no return is fixed |
| Amount you can pay in | ₹500 to ₹1,50,000 a year, in multiples of ₹50 | ₹250 to open, ₹10 for each contribution after that, no upper limit |
| Length | Matures 15 years from the end of the year you opened it; can be extended in blocks of 5 years | Exit at 15 years of subscription or age 60, whichever is earlier |
| Taking money out early | Partial withdrawal after 5 years from the end of the year of opening, once a year, up to 50% of an earlier balance; early closure after 5 years only for a life-threatening illness, higher education or becoming an NRI | Partial withdrawal after 3 years, up to 25% of your own contributions, four times before 60, for listed purposes; exit before the normal age means at least 80% buys a pension |
| Deduction, old regime | Counts under section 123 | Own contribution counts under section 123, plus up to ₹50,000 under section 124(3) |
| Deduction, new regime | None | None for your own contribution; employer's counts |
| Tax on the payout | All exempt | Tax-free up to 60% of what is paid at exit; cash above 60% is taxed at your slab rate; the pension is taxed when you receive it |
| At the end | The whole balance as cash | At least 20% buys a pension (an annuity), up to 80% as cash; government subscribers put 40% into an annuity at retirement |

Our guide to [opening a PPF account](https://koshex.com/blog/how-to-open-a-ppf-account) covers the PPF rules in full.

For NPS, the [NPS account guide](https://koshex.com/blog/national-pension-scheme-nps-how-to-open-nps-account) explains how to open one, and [NPS versus mutual funds](https://koshex.com/blog/nps-vs-mutual-fund-which-is-a-better-investment-plan) sets NPS beside funds.

## How is the money from PPF and NPS taxed?

Everything PPF pays you is exempt from tax, but NPS is tax-free only up to 60% of what you are paid at exit.

For PPF, any payment from a provident fund set up and notified by the Central Government is excluded from your total income. So PPF interest and the maturity payout are both outside your taxable income.

NPS works in three parts:

- The first 60% of the exit payment is exempt.
- A non-government subscriber can now take more than that as cash. Anything above 60% counts as income for that year and is taxed at your slab rate.
- The money that buys the pension is not taxed when the pension is bought; the pension is taxed as income when it is paid to you.

Partial withdrawals from NPS are tax-free for an employee. If the subscriber dies, what a nominee receives is not income. The detail sits in [NPS rules and tax benefits](https://koshex.com/blog/new-nps-rules-and-tax-benefits), and [NPS annuity and pension plans](https://koshex.com/blog/nps-annuity-and-pension-plans) covers the pension side.

## How do NPS, PPF and EPF compare?

EPF (Employees' Provident Fund) is the provident fund you and your employer pay into through your salary. PPF is one you open yourself, and NPS is a market-linked pension account. You can have all three.

In the old regime, your own EPF, PPF and NPS money all draw on the same ₹1,50,000 under section 123. Your employee share of EPF counts there, including any voluntary contribution.

EPF changed in 2026. Since 29 June 2026, EPF has run under the Employees' Provident Funds Scheme, 2026, made under the Code on Social Security, 2020. Existing members moved into it automatically. The pension scheme (EPS) was replaced by a 2026 version on the same day.

|  | EPF | PPF | NPS (non-government, Tier I) |
| --- | --- | --- | --- |
| Who it is for | Employees. If your PF wages (basic pay plus dearness allowance) are ₹25,000 a month or less and your employer has 20 or more staff, you must be in it | Resident citizens | Citizens aged 18 to 85 and OCIs |
| What goes in | 12% of your PF wages from you and 12% from your employer, of which 8.33% of wages up to ₹25,000 a month goes to EPS | ₹500 to ₹1,50,000 a year | ₹250 to open, ₹10 a contribution after, no upper limit |
| How the return is set | 8.25% a year for 2025-26, as recommended by EPFO's Central Board of Trustees (PIB, 2 March 2026) | 7.1% for 1 October to 31 December 2026 | Market-linked |
| Deduction, old regime | Your 12% and any voluntary contribution, under section 123 | Under section 123 | Under section 123, plus up to ₹50,000 under section 124(3) |
| Tax on interest | Interest on your own contributions above ₹2.5 lakh a year is taxable; the limit is ₹5 lakh if your employer puts nothing in | None | No interest; see the payout |
| Tax on the payout | Tax-free after five years' continuous service. Also tax-free if the job ended through ill-health or the employer's closure. Also tax-free on a transfer to a new employer's PF, or of the entire balance to NPS. Otherwise taxed | All exempt | Tax-free up to 60% of the amount paid at exit |
| Taking it out | Whole balance after retiring at 55 or later, if permanently unable to work, or before moving abroad for good; after leaving a job, 12 months without a job covered by EPF | Partial withdrawal or early closure as in the table above | Partial withdrawal or exit as in the table above |

EPS pays a monthly pension from 58 if you have at least ten years of service.

VPF is extra money you choose to put into your own EPF account through your employer, above the 12% that is compulsory. Your employer does not have to match it. It earns the same interest as the rest of your EPF and can be withdrawn only under the EPF withdrawal rules. Our guide to [PF and VPF](https://koshex.com/blog/pf-and-vpf-why-you-should-opt-for-vpf) goes further.

For the details behind the EPF column, see the guide to [EPF](https://koshex.com/blog/employee-provident-fund-your-key-to-a-more-secure-and-stable-future), [how EPF interest is taxed](https://koshex.com/blog/how-epf-interest-is-taxed) and [PF withdrawal rules](https://koshex.com/blog/pf-withdrawal-rules-a-comprehensive-guide-to-rules-documents-required-and-types).

## Which factors separate PPF, NPS and EPF?

Four things separate them. One is when you will need the money. Another is how large a fall in value you can sit through. The last two are your tax regime and whether an employer pays into a fund for you.

PPF's rate is set by the government each quarter. NPS moves with the market, so its value can fall as well as rise. In the new regime, only an employer's NPS contribution reduces your tax. EPF needs a job that is covered by it.

To see how each grows under rates you choose, try the [PPF calculator](https://koshex.com/calculators/ppf-calculator), the [NPS calculator](https://koshex.com/calculators/nps-calculator) and the [EPF calculator](https://koshex.com/calculators/epf-calculator).

## Frequently asked questions

### Can I open both a PPF and an NPS account?

Yes, you can invest in both PPF and NPS at the same time. Nothing in either scheme's rules stops you, and you can pay into both in the same year. PPF is for resident citizens of India. NPS is for citizens aged 18 to 85, resident or not, and Overseas Citizens of India.

### Is the ₹1.5 lakh limit separate for PPF and NPS?

No. In the old regime, PPF deposits and your own NPS contribution count towards the same ₹1,50,000 under section 123. Only NPS has an extra allowance of up to ₹50,000 under section 124(3), also in the old regime only. The same amount cannot be claimed under both.

### Is NPS better than PPF?

The two work differently, so the useful comparison is of facts. PPF pays a government-notified rate for each quarter; NPS is market-linked with no fixed return. Weigh when you need the money and how large a fall you can sit through. Also weigh your tax regime and whether you have an employer.

### Do PPF and NPS save tax in the new regime?

No deduction applies to PPF deposits or to your own NPS contribution in the new regime. An employer's NPS contribution does qualify there, up to 14% of salary. The other deductions in this article work in the old regime only.

### Is NPS tax-free like PPF?

No. PPF payouts are exempt, but NPS is tax-free only up to 60% of what you are paid at exit. If a non-government subscriber takes more than 60% as cash, anything above 60% counts as income for that year and is taxed at your slab rate. The money that buys the pension is not taxed then; the pension is taxed as income when you receive it.

### Can I have EPF and NPS together?

Yes. Your own EPF contribution also counts towards the ₹1,50,000 under section 123, in the old regime only. If your employer's contributions to EPF, NPS and superannuation together pass ₹7.5 lakh in a year, the excess is taxed as part of your salary.

### Can I move my EPF balance into NPS?

The Income-tax Act keeps the EPF balance tax-free when the entire balance moves to your NPS account. Section 124's notified pension scheme covers NPS.

### Does a PPF account for my child give me another ₹1.5 lakh?

No. The ₹1,50,000 PPF limit covers deposits in your own account and in the account you open for a minor together. The tax deduction under section 123 is also a single ₹1,50,000 total in the old regime.

*This article explains how things work; it is not advice to buy or sell any investment. Mutual fund investments are subject to market risks, read all scheme related documents carefully.*