The Employees Provident Fund (EPF) and Public Provident Fund (PPF) are two government-backed saving schemes designed to encourage long-term savings. While EPF is primarily for salaried employees in the organized sector, PPF is open to all Indian citizens. Both schemes offer tax benefits under Section 80C of the Income Tax Act, making them attractive options for building a retirement corpus. Let’s explore the key features of EPF and PPF in detail.
What is Employees Provident Fund (EPF)?
The Employees Provident Fund (EPF) is a retirement savings scheme mandated for salaried employees working in the organized sector. It is managed by the Employees’ Provident Fund Organisation (EPFO). Here are some key features of EPF:
- Eligibility: EPF is mandatory for employees working in companies with 20 or more employees. Both the employer and employee contribute 12% of the employee’s basic salary and dearness allowance to the EPF account.
- Contribution: As mentioned, both the employer and the employee contribute equally (12% each) to the EPF. However, the entire employer contribution is not directed solely to EPF; a portion goes to the Employees’ Pension Scheme (EPS).
- Interest Rate: The interest rate on EPF is decided by the government annually. For 2023-2024, the interest rate stands at 8.15%.
- Withdrawal: EPF can be withdrawn upon retirement or under certain circumstances like unemployment or medical emergencies. Partial withdrawals are allowed under specific conditions.
- Taxation: Contributions to EPF qualify for tax deductions under Section 80C. Interest earned and the maturity amount are tax-free if withdrawn after 5 years of continuous service.
What is Public Provident Fund (PPF)?
The Public Provident Fund (PPF) is a long-term savings scheme available to all Indian citizens. It is a popular option for individuals who are self-employed or those who do not have access to EPF. Here’s how PPF works:
- Eligibility: Any Indian citizen can open a PPF account. It is particularly useful for individuals who do not work in the organized sector or do not have access to EPF benefits.
- Contribution: You can contribute a minimum of ₹500 and a maximum of ₹1.5 lakh per financial year to your PPF account. The contribution is flexible, and you can deposit lump sums or periodic amounts.
- Interest Rate: The interest rate for PPF is decided by the government every quarter. For the July-September 2024 quarter, the interest rate stands at 7.1%. The interest is compounded annually.
- Lock-in Period: PPF has a lock-in period of 15 years, but partial withdrawals are allowed from the 7th year onwards. The account can also be extended in blocks of 5 years after maturity.
- Taxation: Contributions to PPF qualify for tax deductions under Section 80C. The interest earned and the maturity amount are entirely tax-free, making it an attractive long-term investment option.
Key Differences Between EPF and PPF
Here is the detailed table of key differences between EPF and PPF that you can easily copy:
| Aspect | EPF | PPF |
| Eligibility | For salaried employees in the organized sector | Available to all Indian citizens, including self-employed individuals |
| Contribution Limits | Both employer and employee contribute 12% of the basic salary | Individuals can contribute between ₹500 and ₹1.5 lakh per year, with no employer contribution |
| Interest Rate | Government-decided, currently at 8.15% (2023-24) | Government-decided, currently at 7.1% (reviewed quarterly) |
| Withdrawal Rules | Withdrawal allowed at retirement or under certain circumstances, with partial withdrawals permitted | 15-year lock-in period, partial withdrawals allowed from the 7th year onwards |
| Tax Benefits | Eligible for tax deductions under Section 80C. Maturity is tax-free, but withdrawals before 5 years may be taxable | Eligible for tax deductions under Section 80C. Maturity amount is entirely tax-free |
Both the Employees Provident Fund (EPF) and Public Provident Fund (PPF) are excellent tools for long-term savings, with each serving different sections of the population. While EPF is geared towards salaried employees in the organized sector, PPF offers a flexible and accessible option for all Indian citizens. Understanding the differences between the two will help you make informed decisions and secure your financial future.
