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Difference between GPF and PPF

In a world where market fluctuations and economic vulnerabilities are posing new challenges, investing in a savings instrument can equip you to manage your finances better. Not only do savings harbour great monetary potential, but they also ensure that a secure corpus can be built up for taking care of all your current and future contingencies.

However, with a plethora of saving schemes dotting the horizon today, choosing the one which meets your specific needs and requirements appropriately has indeed become a tough task. How do you select a scheme which fulfils your long-term financial objectives without compromising on your short-term monetary necessities? Which plan can match your investment tenure and yet permit term-based flexibility? Is there an alternative which allows you to invest in accordance with your risk appetite and still maintain a credible reward profile? It is precisely to resolve such issues that the concept of a Provident Fund was introduced by the Government of India.

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What is a Provident Fund?

A Provident fund (PF) is essentially a savings account operated by the Government of India for the benefit of its citizens. It acts as an investment vehicle which involves saving a certain amount of money every month and withdrawing it only when the fund attains maturity. For instance, as a Provident Fund holder, you will have to deposit a part of your monthly salary into the fund which can be withdrawn with interest at the expiry of the PF's total tenure. More so, tax deductions and exemptions are available for most provident funds under Section 80 (c) of the Income tax act.

The idea and mechanism of a PF is comparable to the social security plan of USA and other similar provident funds which are being run by many South Asian governments.

Types of Provident Funds

There are a number of provident funds are presently operating in India, each with a different set of characteristics and features. Nonetheless, the most prominent ones amongst these are:

  • Recognised Provident Fund: Commonly known as the Employee Provident Fund (EPF), this fund has been lent legal recognition under the Employee Provident Fund & Miscellaneous Provisions Act, 1952. It is mandatory for organisations which have at least 20 or greater than 20 employees to subscribe to an EPF. If the number of employees is less than 20, the subscription is voluntary. Organisations are also free to set up their own trusts, which provide the same benefits as an EPF. However, these trusts have to be registered with the Employee provident fund organisation (EPFO) for maintenance of record. Under a recognised provident fund, a certain percentage of monthly salary (12%) is contributed towards the fund by the employees, while their employer too makes a similar contribution of 12% every month. The total amount is available for withdrawal after retirement.

  • Unrecognised Provident Fund: As the name itself suggests, an unrecognised provident fund is the one which has neither been approved nor been recognised by any legal or tax authorities. Instead, it has been privately started by the employers and the employees. Unlike their recognised counterparts, the minimum number of employees and the percentage of monthly salary contribution is not fixed for unrecognised provident funds. This is why, their tax treatment and structural validity is also quite different from EPF.

Apart from the aforementioned, there are two other types of provident funds, which owing to their large scale use and popular acceptability, have been explained separately. These are:

  1. General/Statutory provident fund (GPF)
  2. Public provident fund (PPF)

What is General Provident Fund (GPF)?

A GPF is a provident fund, the services of which can be availed by any government employee. Just like EPF, it requires the employee to contribute a specific percentage of his/her salary (usually 6%) into the GPF account every month. The total accumulated amount is paid back to the contributor when he/she becomes eligible for superannuation or retirement.

Eligibility Conditions

  • You must be a resident/citizen of India.

  • You must be employed by the government, its ancillary organizations or public sector undertakings.

  • If you are working with a private company, you are not eligible to open a GPF account.

  • You should have joined the government service before the cut-off date of 1st January, 2004.

For most practical purposes, GPF is covered under the General Provident Fund Rules, 1960. Its terms, conditions, contributions, and interest rates can also be altered by the official memorandums that are issued by the government from time to time.

Working Conditions

A GPF usually functions in accordance with the following conditions:

  • The account holders are supposed to contribute a predefined part of their salary in regular instalments.

  • The aggregate amount is delivered with interest at the time of the employee's superannuation or retirement.

  • The account holders can nominate a beneficiary who will be eligible to reap the benefits of GPF in their place.

  • The employees can obtain a 'GPF advance' or an interest-free loan from their savings account. This amount can be paid back in lump-sum or in instalments with no prepayment charges.

  • One can avail as many GPF advances as required, throughout one's career.

What is Public Provident Fund (PPF)?

Initially introduced under the Public Provident Fund Act,1968, the PPF is open to all citizens of India. The primary purpose of this scheme is to develop a culture of savings and breed a sense of fiscal discipline amidst the general populace. Its basic features include:

  • Any Indian citizen with a residency or domicile in the country is eligible to open a PPF account, even if they already have a separate EPF/GPF account.

  • The account can be opened at a post office, a public sector bank, or any other financial institution certified by the government.

  • The minimum lock-in period of a PPF account is 15 years. It is possible to extend this tenure by a term of 5 years, however, the term cannot be reduced.

  • A premature closure of account or withdrawal of corpus is allowed under certain circumstances after the first 5 years have been completed.

  • The minimum amount of money which can be deposited within a financial year is Rs. 500 while the maximum amount is Rs. 1,50,000.

  • A maximum of 12 deposits can be made within one financial year, but each of these deposits should at least be of Rs.100.

  • A yearly interest is paid by the government on the money deposited in the PPF account. The rate of this interest varies from one year to another.

  • PPF also provides a loan facility between the 3rd and the 6th year. 25% of the total account balance can be availed as a loan, within this time period. This loan is completely free of interest and prepayment charges.

  • From the 7th year onward, partial withdrawal of money is permitted.

  • A PPF account can be transferred from one post office/bank branch to another, without any hassle. Nevertheless, the account cannot be transferred from one person to another.

Last but not least, a PPF account is highly cost effective and tax efficient. The deposits made, the interest accrued and the final withdrawal are non-taxable and can be claimed as a tax deduction.


At this juncture, it becomes extremely important to understand how GPF and PPF differ from one another. The major points of comparison have been highlighted in the table below:

Parameters GPF PPF
Who can invest? This scheme is only available for government employees who joined service before 1st January, 2004. This scheme is available for any citizen of India who possesses domicile credentials.
How much investment can be made? Employee Contribution- 6% of the total salary and emoluments.
Government contribution- 6%.
Minimum- Rs. 500
Maximum- Rs. 1,50,000.
A maximum of 12 instalments can be deposited every year.
What is the current Interest Rate? 7.6% 8.0%
Are there any loan options available? GPF advances can be availed throughout an employee's career. There is no maximum or minimum limit in this regard. Loans are available between the 3rd and the 6th financial year, subject to a maximum of 25% of the total deposit.
What is the maturity period? The fund matures during the employee's superannuation or retirement. The fund matures in 15 years. However, it can be further extended by a span of 5 years.
Is it tax-efficient? The final GPF withdrawals are tax free, but, the initial contributions are not. The interest accrued, contributions made and the final withdrawal are all exempted under Section 80 (c).

The Road-Map Ahead

If you are looking for a way to compare all saving schemes and determine which one to invest in, online platforms can prove to be of immense help. Not only do they assist you with their time-tested strategies, but they also make sure that you know all your options thoroughly before taking a well-researched and well-informed decision.

Schemes like GPF, PPF, and EPF enable people to develop a habit of saving. Moreover, these plans also ensure that their current financial needs can be met without them having to opt for expensive bank loans. It thus comes as no surprise that savings schemes are one of the most highly invested and much sought after plans, which are being presently run by the Government of India.

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