Public Provident Fund (PPF)
Public Provident Fund (PPF) is a long-term savings scheme offered by the Government of India. It is a savings-cum-tax-saving instrument that is designed to encourage individuals to save for their future. The scheme is administered by the Ministry of Finance and is available to all Indian residents, including individuals, Hindu Undivided Families (HUFs) and NRIs.
The scheme offers a number of benefits, including attractive interest rates, tax benefits, and a long-term investment horizon. The interest rate on PPF deposits is determined by the Government of India and is revised on a quarterly basis. The current interest rate is 7.1% per annum.
Investors can open a PPF account at any designated bank or post office in India. The minimum deposit required to open a PPF account is Rs.500, and the maximum deposit is Rs.1.5 lakhs per financial year. Deposits can be made in lump sum or in instalments.
Investment in PPF qualifies for tax benefits under Section 80C of the Income Tax Act, 1961. The deposits, interest earned, and maturity proceeds are all tax-free under the scheme.
The investment horizon of PPF is 15 years, and the account can be extended in blocks of 5 years. A partial withdrawal of up to 50% of the balance at the end of the 4th year is allowed. An account holder can make a premature closure of the account after completing 5 years of investment.
Employee Provident Fund (EPF)
The Employee Provident Fund (EPF) is a retirement savings scheme that is mandatory for all employees in India who earn a salary of less than Rs. 15,000 per month. Under this scheme, both the employer and employee contribute a certain percentage of the employee’s salary towards the EPF account each month. The current rate of contribution is 12% of the employee’s salary, with 8.33% going towards the EPF account and the remaining 3.67% going towards the Employee Pension Scheme (EPS). The employer also contributes an equal amount to the EPF account.
The EPF account can be used to save for retirement, and the accumulated amount can be withdrawn at the time of retirement or when the employee leaves the organization. The funds in the EPF account earn interest at a rate determined by the government each year. The interest earned on the EPF account is tax-free.
Employees can also withdraw the funds in their EPF account before retirement in certain circumstances, such as for the purchase of a house or for medical treatment. However, there are certain conditions and restrictions that apply to such withdrawals.
Employees can also check their EPF balance and view their transaction history online using the Unified Portal of the Employees’ Provident Fund Organization (EPFO). They can also update their personal details and change their nominee through the portal.
Important Differences Between PPF and EPF
The Public Provident Fund (PPF) and the Employee Provident Fund (EPF) are both long-term savings schemes offered in India, but they have some key differences.
- Eligibility: PPF is open to all individuals, while EPF is mandatory for employees earning less than Rs 15,000 per month.
- Contribution: The minimum annual contribution for PPF is Rs 500, while the minimum annual contribution for EPF is 12% of the employee’s salary.
- Maturity Period: PPF has a maturity period of 15 years, while EPF does not have a fixed maturity period, and the funds can be withdrawn at the time of retirement or when the employee leaves the organization.
- Interest Rate: The interest rate for PPF is determined by the government each year, while the interest rate for EPF is also determined by the government each year but it generally higher than PPF.
- Tax Benefits: Both PPF and EPF offer tax benefits under Section 80C of the Income Tax Act, but the tax treatment of the interest earned and maturity proceeds is different. The interest earned on PPF is tax-free, while the interest earned on EPF is tax-free only up to a certain limit.
- Withdrawal: Withdrawals from PPF are allowed only after the completion of 5 financial years, and a maximum of one withdrawal in a financial year is allowed. EPF can be withdrawn at the time of retirement or when the employee leaves the organization.
In summary, PPF and EPF are similar in that they both offer long-term savings schemes with tax benefits, but there are significant differences in terms of eligibility, contribution, maturity period, interest rate, and withdrawal options.