PPF (Public Provident Fund) is a scheme implemented by the Government of India. The scheme offerssavings benefits to people, especially to those working in the unorganized sector. Self-employed workers and professionals can also choose to invest in the scheme and earn a lump sum benefit after 15 years.
EPF (Employee’s Provident Fund) is a retirement benefit available for salaried employees. The EPF should be contributed by the employee as well as the employer. The amount contributed to EPF can be withdrawn after the retirement or resignation of the job.
So let’s take a look at PPFs first.
Features of PPF account
- Ideal for workers in the unorganized sector
- It is a long-term investment plan with some restrictions on withdrawals
- Offers loan facility during the initial years
- Partial withdrawal facility available
- Can be opened by any Indian citizen
- Nomination facility available
- Offers tax exemption on deposits, interest and withdrawals
- Offers security
Benefits of PPF account
- Eligibility – PPF account can be opened in the name of infants as well as senior citizens. There is no age restriction on the opening of an account. However, there should be only one account in the name of an individual. If an account is opened in the name of minor, it should be operated by a guardian or parent. After attaining 18 years, the account can be maintained by the child. The necessary documents should be submitted to complete the process.
- Opening of PPF account – The public provident account can be opened in any post office or recognized bank.
- Transfer of account – The account can be transferred from one post to another post office, post office to bank, bank to post office and one bank branch to another bank branch, as per the request raised by the applicant.
- Closure of account – You can close the account after the completion of 15-year term. The maturity amount plus interest will be transferred to your savings account. After the completion of the 15-year term, the account can be continued for another 5 years. Thus, it can be continued for any number of 5-year blocks as per your needs.
- Nomination – The account holder can nominate a person. Generally, the nominee is a blood relative such as father, mother, son or daughter. The nomination particulars can be entered while opening the account. It can be updated later as per your needs.
- Guaranteed returns – The interest rate on the PPF account is announced by the Government of India. At present, the rate of interest on the principal amount is 7.6% per annum.
- Tax exemption – The principal amount contributed towards the PPF account is tax-exempt by the Income Tax Act under Section 80C. The interest credited into the account on annual basis is also exempted from tax. Additionally, the maturity proceeds after the 15-year term is tax-free.
- Restriction on deposits – The minimum deposit is Rs. 500/- and the maximum deposit is Rs. 1.5 lakh. You can deposit money in not more than 12 installments in a financial year.
Now that we’ve covered the features of PPF, let’s see what EPF has to offer.
Features of EPF
- The fund is maintained by the Employees’ Provident Fund Organization of India.
- Any private organization having more than 20 employees should register with the EPFO
- Accumulation plus interest will be paid upon retirement or death
- Partial withdrawals are allowed at life’s important events such as children’s education, children’s marriage, illness and house construction
- Insurance benefit equivalent to 20 times the wages, subject to a maximum benefit of Rs. 6 lakhs
- Monthly pension benefit after retirement or superannuation
- Monthly benefit to survivor, widow or children
- Minimum pension benefit on disablement
Benefits of EPF
EPF is the best option for employees to save money on a long-term basis. The amount contributed by the employee will be exempted from income tax liabilities under Section 80C. There will also be tax exemption on the accumulated balance that is payable after retirement. The interest earned post-employment will be taxable.
On the other hand, the interest will be accumulated on the post-retirement fund up to 3 years after retirement. After 3 years, no interest will be paid to the account.
- Eligibility – The employee should be more than 18 years old.
- Mandatory contribution – For employees whose salary is up to Rs. 6500, contribution to EPF account is mandatory. However, those who are drawing more than Rs. 6500 can also contribute to the account, so that they will accumulate funds towards retirement and get tax benefits as well.
- Contribution by the employee – The employee should contribute 12% of the basic salary towards the EPF account. An employee can exercise an option to deduct the PF contribution from the salary account so that the amount will be credited by the employer automatically into the employee’s PF account. Some companies offer a voluntary contribution to the PF account which can be more the 12% of the basic salary. However, matching contribution is not to be paid by the employer above the statutory 12%.
- Contribution by the employer – The employer must contribute 12% of the basic salary towards the EPF account of the employee.
- Tax exemption – The contribution made by the employee towards the EPF will be exempted from income tax. You can claim income tax deduction to the extent of Rs. 1.5 lakh in a financial year.
- Safety of returns – The contribution to EPF is safe. You will be able to contribute to the pension fund with a great discipline. The principal and the interest will be safe and it will help you fulfill your long-term financial goals.
- Loan against EPF – Most companies offer the facility to take a loan against your EPF account. If you are in urgent need of funds, you can approach your employer and the loan will be provided as per company norms.
- The rate of interest – The rate of interest on the EPF will be fixed by the government every year. For the financial year, 2017-18 the EPFO announced an interest rate of 8.55%.
- Partial withdrawal – The EPF subscriber can withdraw partial amounts to fulfill the important events in life such as children’s marriage, children’s education, healthcare expenses and the purchase of a home.
- Full withdrawal – The EPF subscriber can withdraw the complete amount after the retirement. If you quit the job, you can get the full amount by submitting a declaration of your unemployment in the coming six months.
- Balance transfer – Even if you shift from one job to another job, you can transfer your EPF account without any issues.
Who should opt for EPF?
EPF is ideal for employees to save a corpus towards their long-term financial goals. Employees will get regular pension benefit as well as an insurance benefit. The employee will be able to take care of future needs such as children’s education, children’s marriage and house construction, etc. You can withdraw the funds during a medical emergency. The subscriber can enjoy income tax benefits under Section 80C up to Rs. 1.5 lakh per annum. If the EPF subscriber dies, the financial benefits will go to the legal heir.
The employer contribution towards the EPF account will bring additional benefit to the subscriber. The employee can use the same provident fund even though there is a change in the job. The account can be continued until retirement and lump sum can be withdrawn to fulfill various financial goals in the life. The EPF fund will earn interest up to 3 years after the retirement. No interest will be paid even though the money is not withdrawn from the account.
Who should opt for PPF?
PPF can be opened by any Indian citizen. Employees can subscribe to PPF account in addition to EPF account. However, the total tax exemption is limited to Rs. 1.5 lakh per annum either under EPF or PPF account, an employee should apply his/her discretion when using either or both accounts. On the other hand, PPF offers great benefits for people working in the unorganized sectors. Self-employed workers will be able to save money and can avail the loan or partial withdrawal facility on their PPF account without needing to notify their company. The greatest advantage with the PPF account is that the principal as well as the interests are not taxed. The final accumulated amount can be withdrawn without any tax curbs.
The eligibility, interest rate, withdrawal limits and maturity are some of the prominent differences between the EPF and PPF account. EPF will serve the interests of employees. Self-employed persons will be greatly benefited by the PPF account. There is great flexibility in opening and maintaining a PPF account. It can be maintained by paying a minimum deposit of Rs. 500 per annum and a maximum deposit of Rs. 1.5 per annum. It is not possible to deposit more than 12 installments into the PPF account. Hence, you should be aware of the terms and conditions of both schemes and decide accordingly.