Employees Provident Fund (EPF) and Public Provident Fund (PPF) are two of the most popular long-term Government-backed savings schemes. However, often people lack clarity with respect to their details. While EPF is a government-established savings scheme designed for the employees of the organised sector, PPF is a government-supported scheme where anyone can invest – from salaried professionals to self-employed professionals and non-professionals.
This blog provides a detailed guide on EPF and PPF so that you can make
Employees Provident Fund, the full form of EPF, is a 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 as EPF contribution and gets deposited in the employee’s EPF account. Employees and employers are required to contribute 12% of the basic wages and dearness allowance to EPF accounts. Interest rates of EPF accounts is higher than that of savings bank accounts standing at 8.10%.
Point to note – EPF lock in period is usually till the age of retirement of resignation, however, there are tax implications if EPF is withdrawn within 5 years of employment.
The interest rate is higher in an EPF account than that of a savings bank account. The current EPF interest rate on EPF deposits stands at 8.1%. An employee can contribute a higher amount than the required minimum contribution voluntarily. But the contribution of the employer will remain unchanged.
The primary objective of EPF is to motivate employees to build their savings for their retirement. EPF contributions are eligible for tax deduction Under Section 80C of the Income Tax Act, 1961.
Public Provident Fund, the full form of PPF, is a Government-backed long-term investment and savings scheme. You can start your PPF investments with just Rs.500, however, maximum PPF investments/deposits in a financial year is capped at Rs.1.5 lakh. It is considered as one of the safest, high-returns generating savings and tax-saving schemes with interest rates standing at 7.1% as of 2023. The Government of India which revises the PPF interest rates every quarter.
Point to note – The lock-in period of PPF is 15 years. Additionally, you can claim tax benefits of up to Rs.1.5 lakh on PPF investments under Section 80C of the Income Tax Act.
|Amount of Investment||12% of one’s basic salary. The amount can increase based on employer-employee agreement||Minimum Rs. 500 and maximum Rs. 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 and retired people|
|Tenure||Employees can close EPF accounts when they leave or change jobs.||15 years is the lock-in period. It can be extended for 5-year blocks after completion of the minimum tenure.|
|Rate of Interest||8.10%||7.10%|
|Lock-in Period||Till retirement – Tax implications if withdrawn within 5 years of employment||15 years and can be extended in 5-years-blocks|
|Tax Benefits||Contribution amount is tax-deductible. Maturity amount will be tax-free after 5 years||Contribution is tax-deductible. 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|
In many ways, an EPF account can be considered more beneficial than PPF because even the employer contributes to it. In addition, EPF interest rates are higher. However, EPF becomes null and void 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 in the future.
So, if you’re salaried and have been making PF contributions, you could simultaneously invest in a PPF as well. The minimum amount required to invest in a PPF account in a year is just Rs.500. Plan your yearly PPF investment. This could help you lead a stress-free and financially independent life post-retirement.
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 riskier because of equity exposure.
Given below are important points related to the safety of investment EPF and PPF:
While PPF comes with a lock-in period of 15 years, EPF is considerably more liquid.
Given below are important points related to liquidity of EPF:
Given below are important points related to PPF liquidity:
Here are the important points related to EPF and PPF taxation:
Though both EPF and PPF are highly popular among investors due to their low-risk high-returns characteristics, there are a few drawbacks or rather limitations that you need to factor in.
Both EPF and PPF are effective instruments for building a savings corpus. Understand the EPF and PPF rules to make infrared investment decisions. A few additional reminders – interest rates are higher for EPF compared to PPF, however, this account can be opened by salaried individuals only. But anyone can open a PPF account which comes with a maturity period of 15 years.
Ans. 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.
Ans. 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%.
Ans. 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.
Ans: 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.
Ans: 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.
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