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PPF vs EPF

EPF or Employees’ Provident Fund is commonly known as PF. The saving scheme was introduced by the government for organised sector employees. Employees Provident Fund Organisation or EPFO decides the rate of interest every year. EPFO is a statutory body established under the Employees’ Provident Fund Act, 1956. The current EPF interest rate has been updated to 8.65%. The employees of the company need to be registered under the EPF Act in order to invest in the EPF scheme. The contribution of 12% of the employee’s basic salary and DA allowance needs to be made by the employer and the employee every month to the EPF account.

Public Provident Fund or PPF is a government-backed savings scheme which is open to anyone whether employed, unemployed, or retired. Anyone can start investing in the scheme by making a contribution of a minimum amount of INR 500 and maximum of INR 1.5 lakh per year. PPF saving scheme has a fixed return which is updated by the government of India every three months. The PPF account can be opened with any major bank or post office. The current PPF interest rate as of 1st April 2019 is 8%.

Difference between PPF vs EPF

CriteriaPPFEPF
Who is eligible to InvestAny person living in India, except for NRI or foreign nationals. Includes businessman, salaried employee or retired individual.The employees who are registered under the EPF act can only invest in EPF scheme.
Investment SumMin is INR 500 and Max is INR 1,50,000Mandatory 12 % of basic salary, DA. The amount can be increased by the employee voluntarily
DurationMinimum of 15 Years, it can be extended after that for a block of 5 years againThe account can be closed while leaving the current job permanently or it can be transferred to the new company
Current rate of Interest8.00%8.65%
Who contributes to the fundIndividual himself/herself or parent, in case of a minorBoth Employee and Employer have to contribute
Tax AdvantageThe individual can claim tax deduction under Section 80C of the IT Act, 1961. The amount received on maturity amount is also tax-free.The individual can claim tax deduction on contribution under Section 80C of the IT Act, 1961. Maturity amount will be tax-free only if the duration in the scheme exceeds 5 years

Why Invest in PPF?

PPF (Public Provident Fund) has become a prevalent long term investment scheme. PPF is supported by the Government of India, thereby ensuring the security of returns at attractive interest rates. The returns of the PPF are exempt as per the provisions of Income Tax Act, 1961. Currently, investors can save tax on the contributions made towards PPF to a maximum of INR 1, 50,000 and can also use important financial credit facilities like a loan, withdrawal of funds and extension of account tenure.

PPF is a great option for everyone to get enrolled, especially for self-employed persons or people working in the unorganised sector where a pension or saving schemes are not part of the annual salary of a person. The scheme was introduced by National Saving organisation in the year 1968 to promote and mobilise small savings. The main aim behind the scheme was to form a habit of saving amongst the citizens of the country, so the savings amount can be used in times of financial crises or to realize future goals. In the past, if someone had to open a PPF account, they were required to go to post offices. To bring more convenience and spread the awareness about PPF, a number of banks were allowed to give the facility of opening PPF account to their customers. The benefit of giving the facility of PPF to banks is that they can provide more advanced services like online deposit and maintaining an account which is not currently available in the post office.

PPF scheme gives one of the best interest rates among the government-backed savings scheme to the PPF account holders. Presently, as per 1st April 2019, PPF gives an attractive rate of interest of 8.0% per annum. Since there is no tax on the interest earned, the interest translates into one of the best interest rates offered by a saving scheme, especially in times where bank interest rates are continuously on a fall.

Why Invest in EPF?

The rate of interest of Employees Provident Fund (EPF) has been recently revised to 8.65% from the previous rate of 8.55%. In a situation where interest rates on the majority of saving schemes are on a decline, this kind of guaranteed tax-free return makes the EPF scheme attractive to salaried class individuals who contribute monthly to EPF to build a good corpus for their retirement. The high-interest rate and tax benefits on investment and return make a good case to invest in EPF.

Benefits of Investing in PPF

The PPF or Public Provident Fund is one of the most preferred savings-cum-investment products in the country. They are ideal for investors who are risk-averse and are looking for long-term capital appreciation. In addition, PPF’s tax benefits are applicable on investment as well as on maturity amount, making it a preferred choice for investors. Below are some of the important PPF account benefits.

Safe investment and guaranteed returns

The Public Provident Fund is supported by the Government of India. So, one of the most significant PPF account benefits is that it is totally safe and risk free. The maturity amount, too, is guaranteed by the government.

Multiple PPF tax benefits

One of the best things about a PPF is its (EEE) exempt-exempt-exempt tax standing. PPF is one of the only investments in India to enjoy such a benefit. Investment amount upto the limit of INR 1,50,000 can be deducted from the taxable income. The interest is also tax free and the maturity amount after the term of 15 years is also exempt from tax liability. This makes PPF one of the most tax beneficial investments in India.

Flexible investment amount and good returns

PPF gives the investor a lot of flexibility in terms of the investment amount. The investor can start the scheme with as little as INR. 100. Every year, an investor can invest a minimum of INR. 500 and a maximum of INR. 1, 50,000. The investment can be done in a lump sum or 12 instalments, as per the convenience of the investor. The current interest rate offered in the PPF scheme is 8%.

Liquidity with loan facility and partial withdrawal

Although there is a lock-in period of 15-year, the investor has many options to access the funds in his/her PPF account. The account holder has the benefit of taking a loan of up to 25% of the balance amount available after the end of two years. The loan needs to be repaid within 36 months and the interest rate charged will be 2% higher than the interest rate earned in the account.

The partial withdrawal facility is available from the 7th year. The account can be closed prematurely, if the account holder needs funds in emergencies like medical treatment or for higher education. After the end of 15 years, the account holder can withdraw the amount or extend it in a block of 5 years.

Benefits of Investing in EPF

Below are some of benefits of investing in EPF

High interest rates

EPF gives one of the highest interest rate of 8.65% for a saving scheme. In times where interest rates are on the decline, the high-interest rates help in building a corpus.

Lifelong pension

Contributing to the EPF scheme for a minimum of 10 years ensures a lifelong pension to the contributor. Labour ministry has amended the Employee Pension Scheme, 1995 to ensure that a minimum of INR 1000 pension is provided to pensioners.

Withdrawal facility

The subscriber to the EPF account can withdraw from the account for the purpose of repayment purchase/construction of the house, medical bill, higher education, marriage, etc.

Seamless linking of previous and current accounts

Due to Aadhaar linked UAN number, it has now become easy and convenient to link all previous accounts in case the subscriber has changed jobs. This way, all the contribution made over the years will be accounted for and will be added to the EPF account.

FAQs on PPF vs EPF

Is EPF and PPF the same?

EPF is deducted from the salary of employees, while PPF can be opened by anyone. Both the saving schemes provide an income tax benefit. EPF is provided by Employees' Provident Fund Organisation, while PPF is offered by post offices and banks.

Which is better PPF or EPF?

EPF is a better choice for salaried employees owing to employer contribution and liquidity, whereas PPF is best suited for businessman, self-employed persons and people working in the unorganised sector where EPF is not available.

Which is better NPS or PPF?

If one has to compare between the National Pension System and Public Provident Fund, then NPS is the higher return generating vehicle for a portion of what you invest goes towards equity trading which may offer higher returns. PPF, on the other hand, is all about fixed but guaranteed returns. However, there is no scope for added frills.

Is PPF a pension plan?

No, Public Provident Fund (PPF) scheme is a long term investment option that is being supported by the Government of India. It gives interest rates and returns which do not invite any tax liability.

Can I transfer EPF to PPF?

No, you cannot transfer your EPF to PPF because both are different saving schemes.

What is the difference between VPF and PPF?

The PPF account can be opened by self –employed and people working at unorganized sectors while VPF account is only meant for salaried employees.

What is the difference between NPS and EPF?

The primary difference between NPS and EPF is that NPS gives market linked returns where the maximum of 50% of contributions can be allocated to Equity Markets, while EPF gives guaranteed tax-free earnings in the shape of annual interest.

Who are eligible for EPF?

Employees who are registered under the EPF Act are eligible for EPF. Organisations with more than 20 employees have to mandatorily register for EPF scheme. On the other hand, organisations with less than 20 employees can also register voluntarily.

Can salaried person open a PPF account?

Yes, a salaried person can also open a PPF account, but he/she needs to be a resident of India. PPF facility is not available for NRIs.

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