PPF and EPF: One of the most important aspects of our lives is saving. We try to save as much as we can from the moment we start working. Saving is a friend who comes to our aid in difficult times and a support that we can comfortably lean on in our later years. Money can now be saved through a variety of schemes and funds. According to reports, the Employees’ Provident Fund Organisation (EPFO) decided to cut the interest rate on provident fund deposits for 2021-22 to 8.1 percent, down from 8.5 percent in 2020-21. While the EPF is one method of saving money, there is also the PPF. We often mistakenly believe they are the same, but they are not.
What is EPF?
Employees contribute a portion of their salaries to the provident fund, and employers are required to contribute on their employees’ behalf. The government backs the programme, which is a mandatory deduction for salaried employees. The government holds and manages the money in the fund. After they retire, employees withdraw the funds. Each month, both the employee and the employer contribute 12% of the employee’s basic salary. However, while the employee’s entire share is paid into the EPF, 8.33 percent of the employer’s share is paid into the Employees’ Pension Scheme (EPS) and 3.67 percent is paid into the EPF.
What is PPF?
In 1968, the National Savings Institute, which is part of the Ministry of Finance, established the Public Provident Fund (PPF) as a savings mechanism. It is primarily used by people who want to save for retirement and helps people with tax benefits ensure small savings. It is one of the most popular investments eligible for tax exemptions under Section 80C of the Income Tax Act. The PPF’s main goal is to provide people from all walks of life with the ability to save and invest small amounts of money whenever they want. PPF accounts currently pay a higher rate of interest than savings bank accounts, with a rate of 7.1 percent.
Difference between PPF and EPF
- The EPF is a mandatory contribution that can only be made by salaried professionals who work for a company that is registered under the EPF Act. PPF, on the other hand, is available to any Indian citizen. However, there is a debate as to whether people who are earning should invest in PPF or in another scheme to earn a higher return.
- A minimum of Rs 500 and a maximum of Rs 1,50,000 can be invested in PPF. On the other hand, the EPF will be deducted from the employee’s pay at a rate of 12%, which can be increased voluntarily.
- PPFs have a 15-year tenure and can be extended in five-year increments. EPF, on the other hand, can be closed after permanently leaving a job or transferred to other companies until retirement.
- The current rate of interest in the PPF is 7.1 percent, while the current rate of interest in the EPF is 8.50 percent. As a result, when it comes to retirement plans, salaried individuals should consider the Voluntary Provident Fund (VPF) rather than the Public Provident Fund (PPF). According to experts, the VPF interest rate is the same as the EPF interest rate of 8.50 percent per year, whereas the PPF interest rate is only 7.1 percent. However, because the PPF account has more liquidity, VPF should be chosen over PPF only when the goal is to build a retirement fund. It is important to note that VPF contributions are deposited in employees’ EPF accounts.
- PPF contributions are tax deductible under Section 80C of the Income Tax Act. The maturity amount, moreover, is tax-free. The EPF contribution, on the other hand, is tax deductible. Only after five years has passed is the maturity amount tax-free.
- Following the completion of six financial years, a partial withdrawal from the PPF is possible. In the case of EPF, a person can withdraw 75% of the amount after becoming unemployed for two months, and the remaining 25% can be withdrawn after two months.
- We must contribute to the PPF, whereas the EPF requires both the employee and the employer to contribute.
- The Government Savings Banks Act of 1873 governs the PPF. Employees Provident Fund And Miscellaneous Provisions Act, 1952 governs the EPF.
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