Distinction between EPF and PPF -Curiosity Fee & 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 most well-liked ones. Right here, we’ll discover the numerous areas EPF vs PPF differ from each other, together with which means, returns, tax advantages, and professionals and cons of every.

What’s EPF?

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

• The EPF is run by the Workers’ Provident Fund Group (EPFO) below the Ministry of Labour and Employment. This group is answerable for the administration and regulation of the EPF scheme.
• The EPF is a kind of obligatory 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 (fundamental wage + dearness allowance).
• Of the 12% contribution made by the employer, 8.33% goes in the direction of the Workers’ Pension Scheme, and three.67% to EPF. Your complete 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 asserted yearly by the EPFO.
• The most recent rate of interest is 8.25% every year.
• Workers can exceed the obligatory 12% EPF contribution by going for the Voluntary Provident Fund. Underneath this scheme, workers can contribute a bigger share of their fundamental wage and dearness allowance voluntarily, however employers aren’t required to match this contribution.
• When altering jobs, workers can switch their stability from the outdated employer to the brand new one.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 ready 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 could be made if the unemployment continues for 2 months.
• EPF falls below 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 also be free from tax. Nonetheless, in response to the adjustments made on 1st April 2021, the curiosity earned on EPF contributions exceeding Rs. 2.5 lakh every 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 entice 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 below are some info 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 identify (with guardians related).
• People holding EPF may open a PPF account.
• Residents can open a PPF account by way of any nationwide or authorised non-public banks and put up workplaces.
• Non-resident Indians can’t open any new PPF accounts, nevertheless, they’ll nonetheless function any current PPF accounts till maturity.
• Solely 12 contributions could be made to the PPF account in a monetary 12 months. The minimal quantity that one has to speculate is Rs. 500, whereas the utmost funding quantity per 12 months 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 not contribute Rs. 1.5 lakh to your private account and likewise Rs. 1.5 lakh to your minor youngster’s account in the identical 12 months, because it totals Rs. 3 lakh.
• The federal government decides the rate of interest of PPF each quarter. For Quarter 4 of the monetary 12 months 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 period by 5 years at a time. Throughout these extensions, it’s not obligatory 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 mechanically activated. From right here, just one withdrawal could be made per 12 months.
• After the PPF enters its seventh 12 months, partial withdrawals could be made. The utmost quantity that may be withdrawn is as much as 50% of the stability on the finish of the 4th 12 months or 50% of the stability on the finish of the instantly previous 12 months, whichever is decrease.
• The PPF can also 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 12 months could be deducted from one’s earnings below 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 targets like constructing a retirement fund or planning kids’s weddings. They each enable Rs. 1.5 lakh tax deductions below Part 80C of the Revenue Tax Act and are backed by the federal government, which makes them secure funding devices. The principle 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 might be allowed to carry each accounts.

If you’re a self-employed particular person, you’ll solely be capable of spend money on PPF. It’s a tax-efficient choice because it doesn’t entice 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 12 months 2024-25, the speed is 7.1% every year.

Alternatively, the EPF rate of interest is yearly declared by the Workers’ Provident Fund Group. The 2023-24 rate of interest is 8.25% every year.

Tax Advantages of EPF and PPF

EPF Tax Advantages:

• EPF falls below the Exempt, Exempt, Exempt class. Tax is thus not levied on contributions, curiosity, or withdrawals.
• As much as Rs. 1.5 lakh contribution could be claimed as tax deductions yearly below Part 80C of the Revenue Tax Act.
• No tax is levied on withdrawals after 5 years. Withdrawals earlier than this mark, nevertheless, entice tax on curiosity earned.
• After April 2021, contributions above Rs. 2.5 lakh per 12 months additionally attracts tax on the curiosity earned on the surplus quantity. 

PPF Tax Advantages:

• PPF can also be an Exempt, Exempt, Exempt instrument, so there’s no tax charged on contributions, curiosity, or withdrawals.
• PPF additionally provides Part 80C advantages, permitting people to say a tax deduction of as much as Rs. 1.5 lakh per monetary 12 months 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 12 months below Part 80C.

Disadvantages of EPF:

• EPF is just 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 12 months 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 12 months is just Rs. 500, which makes PPF fairly versatile.
• PPF can also be a tax-efficient Exempt, Exempt, Exempt car. Account holders may get pleasure from Part 80C deduction advantages with this scheme.

Disadvantages of PPF:

• A lock-in interval of 15 years could also be thought of too lengthy by some buyers.
• The utmost quantity one can make investments per 12 months is low, solely Rs. 1.5 lakh.
• The rate of interest supplied by PPF is decrease in comparison with EPF.
• Partial withdrawals could be made solely after finishing 6 years, which can also be thought of fairly lengthy.

Conclusion

The Workers’ 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 labeled as EEE and provide Part 80C advantages, making them tax-efficient.