Distinction between EPF and PPF -Curiosity Price & Tax Advantages

Introduction

Over time, the Authorities of India has launched a number of financial savings schemes to encourage folks to speculate and construct a safe monetary future. These schemes have helped promote monetary literacy and instil a way of monetary self-discipline among the many inhabitants. Amongst these schemes, the Worker’s Provident Fund and the Public Provident Fund are the preferred ones. Right here, we’ll discover the various areas EPF vs PPF differ from each other, together with that means, returns, tax advantages, and professionals and cons of every.

What’s EPF?

EPF stands for the Staff’ Provident Fund. It’s a necessary retirement and financial savings scheme for salaried people. The primary aim of the EPF is to present salaried people monetary safety of their post-retirement years. Listed here are some factors that can assist you to perceive what’s epf precisely:

• The EPF is run by the Staff’ Provident Fund Group (EPFO) beneath the Ministry of Labour and Employment. This group is chargeable for the administration and regulation of the EPF scheme.
• The EPF is a kind of necessary scheme, which goals to assist salaried people construct a retirement fund throughout their working years. Salaried people should contribute to the EPF, and any organisation with 20 or extra workers should register with the EPFO.
• Contribution in the direction of the fund is made by each – the worker in addition to the employer. Each contribute 12% of the worker’s wage (primary wage + dearness allowance).
• Of the 12% contribution made by the employer, 8.33% goes in the direction of the Staff’ Pension Scheme, and three.67% to EPF. All the worker contribution goes in the direction of EPF.
• These financial savings accumulate curiosity which is compounded yearly and credited to the worker’s EPF account. This rate of interest is said yearly by the EPFO.
• The newest rate of interest is 8.25% each year.
• Staff can exceed the obligatory 12% EPF contribution by going for the Voluntary Provident Fund. Underneath this scheme, workers can contribute a bigger proportion of their primary wage and dearness allowance voluntarily, however employers are usually not required to match this contribution.
• When altering jobs, workers can switch their steadiness from the outdated employer to the brand new one. For the reason that Common Account Quantity for EPF stays the identical throughout all jobs, salaried people can simply monitor their accounts/ IDs utilizing them.
• Full withdrawal is allowed when the worker reaches retirement age, which is about at 55 years by the EPFO. Partial withdrawals from the account are additionally permitted in case of emergencies or mortgage compensation.
• In case the person is unemployed for a month, a withdrawal of 75% is allowed. Full withdrawal might be made if the unemployment continues for 2 months.
• EPF falls beneath the Exempt, Exempt, Exempt basket, so the contributions, curiosity, and withdrawals are all exempt from tax.
• Part 80C of the Revenue Tax Act permits people to say deductions as much as Rs. 1.5 lakh on contributions made to EPF. The curiosity earned on EPF can be free from tax. Nonetheless, in keeping with the adjustments made on 1st April 2021, the curiosity earned on EPF contributions exceeding Rs. 2.5 lakh each year is now topic to tax (solely impacts non-government workers).
• Withdrawal after 5 years is tax free as effectively. Any withdrawals made earlier than this mark appeal to tax on the curiosity earned.

What’s PPF?

PPF stands for Public Provident Fund, which is one other long-term financial savings scheme launched and controlled by the federal government. The important thing issue that units it other than the EPF is that it’s a voluntary scheme and is open to all residents of India. Listed here are some details that can assist you to perceive what’s ppf scheme:

• Any Indian citizen, whether or not salaried or self-employed can open a PPF account. Even minors can have an account opened of their title (with guardians related).
• People holding EPF can even open a PPF account.
• Residents can open a PPF account via any nationwide or authorised personal banks and submit places of work.
• Non-resident Indians can’t open any new PPF accounts, nevertheless, they’ll nonetheless function any present PPF accounts till maturity.
• Solely 12 contributions might be made to the PPF account in a monetary yr. The minimal quantity that one has to speculate is Rs. 500, whereas the utmost funding quantity per yr is Rs. 1.5 lakh.
• When a guardian opens a PPF account on behalf of a minor, the overall contribution restrict of Rs. 1.5 lakh for tax deductions applies to all accounts held by the person, which incorporates the minor’s PPF account. For instance, you can’t contribute Rs. 1.5 lakh to your private account and in addition Rs. 1.5 lakh to your minor baby’s account in the identical yr, because it totals Rs. 3 lakh.
• The federal government decides the rate of interest of PPF each quarter. For Quarter 4 of the monetary yr 2024-25 (January 2025 to March 2025), the rate of interest was set at 7.1% compounded yearly.
• The PPF has a maturity of 15 years. After this mark, people can both withdraw their funds or lengthen the length by 5 years at a time. Throughout these extensions, it’s not necessary to make any additional contributions and the fund will proceed to build up curiosity.
• If one doesn’t withdraw their funds after maturity, the default choice, i.e. an extension of 5 years is routinely activated. From right here, only one withdrawal might be made per yr.
• After the PPF enters its seventh yr, partial withdrawals might be made. The utmost quantity that may be withdrawn is as much as 50% of the steadiness on the finish of the 4th yr or 50% of the steadiness on the finish of the instantly previous yr, whichever is decrease.
• The PPF can be an Exempt, Exempt, Exempt scheme. Thus the principal quantity, curiosity earned, and withdrawals are all tax-exempt.
• The outdated tax regime permits additional aid from tax burden. As much as Rs. 1.5 lakh price of PPF contributions per yr might be deducted from one’s earnings beneath Part 80C.

Key Variations Between EPF and PPF

Take a look on the distinction between epf and ppf summarised beneath:

EPF or PPF: Which is Higher?

Each EPF and PPF are good long-term financial savings devices and helpful for monetary objectives like constructing a retirement fund or planning youngsters’s weddings. They each enable Rs. 1.5 lakh tax deductions beneath Part 80C of the Revenue Tax Act and are backed by the federal government, which makes them secure funding devices. The primary distinction between epf and ppf is that the previous is a compulsory scheme for salaried people, whereas the latter is a voluntary financial savings scheme for all Indian residents. There’s no clear reply to epf or ppf which is best of the 2.

If you’re a salaried worker, you’ll have an EPF the place you and your employer will make common contributions. Self-employed people merely can’t contribute to EPF. Being a salaried particular person, nevertheless, doesn’t bar you from contributing to PPF and you’re allowed to carry each accounts.

If you’re a self-employed particular person, you’ll solely be capable to put money into PPF. It’s a tax-efficient choice because it doesn’t appeal to any tax on contributions, curiosity, or withdrawals.

EPF vs PPF Curiosity Charges

The PPF rate of interest is introduced quarterly by the Authorities of India. For This autumn of the monetary yr 2024-25, the speed is 7.1% each year.

However, the EPF rate of interest is yearly declared by the Staff’ Provident Fund Group. The 2023-24 rate of interest is 8.25% each year.

Tax Advantages of EPF and PPF

EPF Tax Advantages:

• EPF falls beneath the Exempt, Exempt, Exempt class. Tax is thus not levied on contributions, curiosity, or withdrawals.
• As much as Rs. 1.5 lakh contribution might be claimed as tax deductions yearly beneath Part 80C of the Revenue Tax Act.
• No tax is levied on withdrawals after 5 years. Withdrawals earlier than this mark, nevertheless, appeal to tax on curiosity earned.
• After April 2021, contributions above Rs. 2.5 lakh per yr additionally attracts tax on the curiosity earned on the surplus quantity. 

PPF Tax Advantages:

• PPF can be an Exempt, Exempt, Exempt instrument, so there’s no tax charged on contributions, curiosity, or withdrawals.
• PPF additionally gives Part 80C advantages, permitting people to say a tax deduction of as much as Rs. 1.5 lakh per monetary yr on contributions.

Benefits and Disadvantages of EPF

Benefits of EPF:

• A secure, government-backed financial savings scheme with a relatively greater rate of interest.
• A secure long-term instrument for constructing a retirement fund for salaried people.
• The employer matches worker contribution. VPF permits people to contribute extra to the fund.
• Exempt, Exempt, Exempt scheme which makes it extremely tax-efficient. Permits Rs. 1.5 lakh deductions per yr beneath Part 80C.

Disadvantages of EPF:

• EPF is barely accessible to salaried people. Self-employed or retired people are ineligible for this scheme.
• Withdrawing funds earlier than 5 years attracts taxes on curiosity earned.
• Solely contributions as much as Rs. 2.5 lakh per yr are exempt from tax.

Benefits and Disadvantages of PPF

Benefits of PPF:

• PPF is a voluntary and secure long-term scheme backed by the federal government.
• All Indian residents, together with salaried and self-employed people, can entry the PPF.
• The minimal contribution quantity per yr is barely Rs. 500, which makes PPF fairly versatile.
• PPF can be a tax-efficient Exempt, Exempt, Exempt automobile. Account holders can even take pleasure in Part 80C deduction advantages with this scheme.

Disadvantages of PPF:

• A lock-in interval of 15 years could also be thought-about too lengthy by some buyers.
• The utmost quantity one can make investments per yr is low, solely Rs. 1.5 lakh.
• The rate of interest provided by PPF is decrease in comparison with EPF.
• Partial withdrawals might be made solely after finishing 6 years, which can be thought-about fairly lengthy.

Conclusion

The Staff’ Provident Fund and Public Provident Fund are government-backed financial savings schemes. Whereas the EPF is designed to assist workers construct a retirement corpus, the PPF is a long-term financial savings scheme for salaried and self-employed people. Each these schemes encourage long-term financial savings. The important thing distinction between EPF vs PPF is that the EPF is a compulsory scheme for salaried workers solely, whereas the PPF is a voluntary scheme open to all Indian residents. Each schemes are categorised as EEE and provide Part 80C advantages, making them tax-efficient.