Employees Provident Fund (EPF) and Public Provident Fund (PPF) are two of the most popular government-backed schemes for long-term savings. In fact, EPF vs PPF is a debate that has dominated the public discourse for a long time.
Here, we will discuss the difference between EPF and PPF, the benefits and drawbacks of each, and more.
Employees Provident Fund or EPF is a long-term savings scheme introduced by the Government of India to financially secure the future of employees. Every month, a portion of the monthly salary gets deducted and deposited in the employee’s EPF account. The employer is stipulated to match the amount. An employee and an employer must each contribute 12% of the employee’s basic salary and dearness allowance (if applicable) to the employee’s EPF account. Currently, the interest rate offered on EPF savings is 8.1%* p.a.
*As per news reports, EPFO has hiked the EPF interest rate for 2022-2023 deposits to 8.15%.
Public Provident Fund or PPF is a long-term investment and savings scheme offered by the government. You can invest as little as ₹500 and as much as ₹1.5 Lakh in PPF in a financial year. It is a relatively safe investment scheme, which currently offers an interest rate of 7.1% p.a. The Government of India revises the PPF interest rate every quarter. However, it has a lock-in period of 15 years. You can also claim deductions on your PPF investments for up to ₹1.5 Lakh per annum under Section 80C of I-T Act, 1961.
|Amount of Investment||12% of one’s basic salary. The amount can increase based on employer-employee agreement||Minimum of ₹500 and maximum of ₹1,50,000 in a fiscal year|
|Eligibility Criteria||Salaried employees of a company registered under EPF Act||Resident Indians, including students, employees, self-employed professionals, and retired people|
|Tenure||Employees can close EPF accounts when they leave or change jobs.||It has a lock-in period of 15 years. It can be extended in 5-year blocks after completion of the minimum tenure.|
|Rate of Interest (As of 27th March, 2023)||8.10%*||7.10%|
|Lock-in Period||Till retirement – Withdrawal within 5 years of employment will have tax implications||15 years and can be extended in 5-year blocks|
|Tax Benefits||The contribution amount is tax-deductible. The maturity amount will be tax-free after 5 years||Contribution is tax-deductible. The maturity amount is tax-free|
|Contributor||Both employer and employee||Self or parent in case of a child|
|Regulating Act/Body||Employees Provident Fund and Miscellaneous Provisions Act, 1952||Public Sector Banks and post offices|
|Scheme Offered By||The Employees’ Provident Fund Organisation under the aegis of the Government of India||Department of Economic Affairs, Ministry of Finance of the Government of India|
|Premature Withdrawal||Partial or full withdrawal may be possible, subject to certain conditions. However, TDS won’t be deducted on completion of continuous service of at least 5 years||Up to 50% of the total savings can be withdrawn upon completing 7 years from the year in which the account was opened. However, only one partial withdrawal is permitted each year|
EPF Vs PPF is a debate that has captured the public imagination for long. While there may be no clear winner, in many ways, an EPF account could be considered more beneficial since it receives contributions from both the subscriber and their employer. In addition, currently EPF is offering a higher interest rate. Premature withdrawal could also be slightly easier, provided certain conditions are fulfilled. However, you cannot enjoy the EPF benefits if you are self-employed or work with an organisation that is not registered under the EPF Act. In that case, you could invest in PPF to enjoy guaranteed returns. EPF investments also tend to be riskier than PPF investments because a portion of your EPF savings are invested in equities, which are subject to market risks. The other benefit of PPF is that the minimum investment amount is just ₹500 per year.
So, in short, both have unique advantages, and the suitability of each would depend on your unique circumstance and financial goals. However, it may not be a bad idea to simultaneously invest in both, if possible, to maximise your savings and tax benefits.
Here are a few other characteristics of EPF and PPF:
Statutory backing makes both EPF and PPF safe options. However, EPF is considered to be slightly riskier because a portion of it is invested in equities.
Given below are important points related to the safety of investment in EPF and PPF:
While PPF comes with a lock-in period of 15 years, EPF is considerably more liquid.
The following are some common forms of provident funds in India:
This is available to everyone, irrespective of the nature of their employment. Even the unemployed can invest in this scheme. The minimum and maximum contribution limit for a financial year has been set at ₹500 and ₹1.5 Lakh respectively. It is fully tax-exempt under Section 80C of the I-T Act.
This is a provident fund that is set up for the welfare of an organisation’s employees, provided the organisation has more than 20 employees. The organisation can either choose to join the EPF scheme governed by EPFO or they can set up a private trust approved by the Commissioner of Income Tax (CIT).
If the CIT refuses to recognise the validity of a privately managed provident fund scheme, it becomes an unrecognised provident fund.
The SPF is also known as the General Provident Fund (GPF). It was set up under the Provident Funds Act of 1925. It is available to employees of the government sector, railways, universities, and other government-recognised educational institutions. Private employers cannot participate in this scheme. The rate is reviewed and decided on a quarterly basis by the Government of India. Currently, the rate offered on SPF savings is 7.1% p.a.
EPF Vs PPF is a debate that has raged on for a long time. There is no clear winner. Since both are backed by the government, they are relatively secure and can help meet your long-term goals.
However, neither is liquid. A Navi Mutual Fund scheme is extremely liquid and can be started with just ₹10. Moreover, if you stay invested for a sufficiently long period, you could maximise your returns potential. To get started, download the Navi App today.
Both EPF and PPF accounts have strict eligibility criteria. You can open an EPF account if you are a salaried individual working at an EPFA registered company. Otherwise, you can opt for a PPF account.
The prevailing rate of interest offered by an EPF account is 8.50%, while that of a PPF account is 7.1%. The interest rate for fixed deposits ranges between 2% and 6% for general citizens. FD rate of interest is slightly higher for senior citizens. It ranges from 3% to 6.75%.
If one compares NPS with PPF, NPS offers higher returns for the investment amount that is allocated for equity trading. However, PPF offers assured but fixed returns. However, it does not provide additional benefits for the investment amount.
A Public Provident Fund scheme is not the same as a pension plan. Instead, it is a long term investment option which provides guaranteed but fixed returns. There’s a stable interest rate that is revised quarterly. PPF is entirely backed by the Government of India.
Yes, a person can have both EPF and PPF accounts. There are no restrictions that stop an EPF account holder from opening PPF. Only a salaried individual can open an EPF account. However, everyone can open a PPF account, including salaried and self-employed.
Yes, you can. However, it could only be done under specific conditions. Moreover, there could be tax implications on premature withdrawal.
PPF investments are tax-free. EPF investments could be taxed, under certain circumstances. Also, PPF is available to anyone, while EPF is not available to the self-employed, retired, and unemployed people.
No, you can’t. The maximum amount one can invest in PPF per year is set at ₹1.5 Lakh.
Yes, EPF investments can earn you an interest of 8.1 % p.a. (as of 27th March, 2023) and can help you meet your long-term financial goals.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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