Difference Between EPF And PPF – What Is EPF?
Employees’ Provident Fund (EPF) deductions are required from employees’ paychecks who work for organisations that qualify. This sum is deposited into the employee’s EPF account, and the employer is also required to contribute a set amount. The primary goal of the EPF is to assist employees in saving and amassing a sizeable sum of money for their retirement years so that they can maintain their financial independence. According to the Employees’ Provident Fund and Miscellaneous Act, 1952, EPF is maintained by the Employees’ Provident Fund Organization (EPFO). A lot more than what a typical savings bank account offers, the money in the EPF account generates an alluring rate of return. The provisions of Section 80C of the Income Tax Act, 1961 permit tax deductions for EPF contributions.
Difference Between EPF And PPF – What Is PPF?
Government-sponsored Public Provident Fund (PPF) is a well-known savings programme. It is one of the most well-liked investing strategies that qualify under Section 80C for tax savings. PPF was created primarily to assist people in all occupations (including those in informal employment) save and investing small sums of money whenever they wish. PPF accounts pay out more money than savings accounts at banks.
The problem with this is that investments made in PPF accounts are locked in for 15 years. A maximum of Rs. 1,50,000, or Rs. 12,500, can be invested annually. Every year, a minimum investment of Rs 500 should be required. The taxpayers can receive tax deductions of up to Rs 1,50,000 per year, which might result in tax savings of up to Rs 46,800.
Difference Between EPF And PPF Account
|Basis Of Difference||EPF||PPF|
|Eligibility||Allows salary employees of a business that is registered with the EPF Act to invest||Except for NRIs, any Indian citizen may invest in PPF.|
|Tax Benefit||Contribution is deductible from taxes. Only at the end of the initial five-year period is the maturity amount tax-free.||Under Section 80C, the donation is tax-deductible. Additionally, the maturity amount is tax-free.|
|Tenure||Can be closed upon permanently leaving a job. Transfers are permitted up until retirement while changing employers.||15 years, with the option of an additional 5-year block extension.|
|DA is required to be 12% of compensation. As agreed upon by the employee and the employer, the amount may be increased.||Minimum of 500 and maximum of 1,50,000 rupees every fiscal year|
|Rate Of Intrest||8.50% p.a.||7.10% p.a.|
|Premature withdrawal||Is Permitted if you have been unemployed for more than two months, as well as for weddings, home construction, or medical needs.||Permitted after the tenure’s seventh year has ended.|
|Age Of Withdrawl||After the age of 58 or if you have been out of work for more than two months, you may withdraw.||After reaching the age of 58, you will start receiving the pension.|
Difference Between EPF And PPF – Which is risky PPF or EPF?
Due to government support, EPF and PPF are both regarded as secure investments. EPF is slightly riskier due to the funds’ exposure to equities assets, nevertheless. The EPFO, a statutory agency, is in charge of overseeing the EPF. The Indian government oversees the PPF directly. 15% of the EPFO’s annual revenue is allocated to equity investments. Government bonds are used to cover the remaining amount.
Depending on the returns produced by the EPF corpus, the EPF rates are released each year. The current interest rates for PPF and EPF are 7.1% and 8.50%, respectively. EPF is a risky option despite having a higher interest rate (8.65%) than PPF due to its equity exposure. The EPFO could be significantly impacted by a turbulent market, and it might be challenging to keep the EPF interest rate constant. PPF returns are assured and fixed. The annual interest rate on this investment has often been in the range of 8%.
Difference Between EPF And PPF – What are the limitations of EPF and PPF?
- Before five years have passed since the account’s creation, partial withdrawals are not permitted from PPF accounts. Before this time, withdrawals from PPF accounts are not allowed, not even in the event of unemployment or a sudden need for money for a family emergency. 15 years is also generally regarded as a very long PPF tenure.
- In comparison to EPF, PPF has always had a lower interest rate. PPF interest rates are fixed, and over time, they may provide significantly lower returns than equity-linked investments like mutual funds and NPS (National Pension System)
- Employees of businesses that have registered under the EPF Act are the only ones eligible for EPF. Companies in this category employ 20 or more people. A retired person or a self-employed person cannot open an EPF account.
- EPF contributions are set at 12% of basic pay and deferred compensation. It incorporates both employer and employee contributions. Investors may not contribute less than the applicable percentage, but they may contribute more to the VPF than the stated %. (Voluntary Provident Fund).
- Any withdrawals from an EPF account that are made before the account has been open for 5 years are subject to taxation. Many employees find it difficult to maintain employment in an EPF-registered firm for five years as India’s economy continues to transition to a modern form.
Difference Between EPF And PPF – The Most Advantageous of the Two
Both EPF and PPF have their share of advantages and disadvantages. Transferability between jobs and the possibility of partial withdrawals are two important advantages of EPF. With EPF, you can avoid the inconvenience of depositing funds from your savings account because it is taken out of your paycheck automatically.
The fact that EPF contributions must be made every month is negative. As you can contribute whenever you can, PPF offers a much-needed relief in contrast. The 15-year lock-in period, however, may occasionally seem excessively long. Your PPF account balance may be used as collateral for a loan. Both EPF and PPF accounts can receive maturity funds that are tax-free.
Difference Between EPF And PPF: FAQs
- EPF and PPF accounts are identical, right?
Answer-While PPF accounts can be opened by anybody who is employed, self-employed, or even retired, EPF contributions are taken directly out of an employee’s paycheck. Income tax advantages are provided by both saving plans. While post offices and banks are in charge of managing PPF, the Employees’ Provident Fund Organization is in charge of managing EPF.
- Which choice—PPF or EPF—is preferable?
Answer-Salary workers should choose EPF since it offers better liquidity and employer contributions. PPF is perfect for business owners, independent contractors, and those working in the unorganized sector.
- Is PF a requirement for all workers?
Answer-Any company with 20 or more employees is required to have an employee provident fund account active.
- Can I take my PF if I leave my job?
Answer-After quitting your work, you cannot instantly withdraw the money in your EPF account. You will have to pay tax on the amount if you want to withdraw funds from your PF account before the five-year window has passed.