EPF vs PPF
Employees’ Provident Fund (EPF) is a compulsory deduction in the salary of the employees working in companies registered under the EPF Act. The employer and employee contribute a certain amount to the employee’s EPF account. The crucial objective of EPF is to save and accumulate money for the employee’s retired life.
Public Provident Fund (PPF) is a popular savings scheme offered by the Indian government. The objective behind PPF is to help all working individuals save and invest small or big amounts of money as per their convenience.
EPF comes under the Employees’ Provident Fund and Miscellaneous Act, 1952 and is managed by the Employees’ Provident Fund Organisation (EPFO). The EPF scheme provides an attractive rate of return on investment. It is much higher than the savings accounts offered by banks.
The employee can contribute more money to PF as a ‘Voluntary Provident Fund’. Although, the employer contribution will remain the same as the fixed amount. The EPF grants are eligible for tax deductions. The tax deductions for EPF contributions can be claimed under Section 80C of the Income Tax Act, 1961.
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The PPF investments also offer greater returns. But the investments made to PPF are in lock-in for a fixed period of 15 years. The maximum investment amount to PPF is limited to 1,50,000 for a year. The minimum required investment amount for PPF is Rs 500, which is lower than any other savings schemes. The taxpayers can avail tax deductions of up to Rs 1,50,000 a year on behalf of PPF. The contribution is eligible for deduction under Section 80C of the Income Tax Act.
EPF vs PPF a detailed comparison
| PPF | EPF | |
| Eligibility | Any Indian citizen except non-residential Indians. | Employees of the company registered under the EPF Act |
| Governing Act | Government Savings Banks Act, 1873. It was earlier Public Provident Fund Act, 1968 | Employees Provident Fund And Miscellaneous Provisions Act, 1952. |
| Investment | Minimum investment amount is Rs 500 and Maximum is Rs 1,50,000 per year | Compulsorily investment of 12 % of salary and Dearness Allowance. Investment can be increased voluntarily |
| Tenure | 15 Years, extendable after that for 5 years indefinitely | EPF accounts can be closed while resigning from the job or else can be transferred while changing companies till retirement. |
| Rate of Interest | 7.10% | 8.50% |
| Contributor | Self investments for adults or parent for minors | Employer and Employee |
| Tax Deductions | Contribution is tax deductible under Sec 80C of Income Tax Act. The maturity amount is completely tax-free. | The contributions can be deductible from tax. Maturity amount is completely tax-free only on completion of 5 years. |
Interest rates for the past 5 years
The EPF interest rate was 8.65% in 2018-19. It came to 8.55 % in 2017-18, 8.65% in 2016-17, 8.8 % in 2015-16, 8.75 % in 2014-15. The interest rate for EPF is kind of static throughout these years. While PPF rates are highly varied. The PPF interest rate for the past 5 years is as follows.
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| Period | Rate |
| April – June, 2020 | 7.10% |
| January – March, 2020 | 7.90% |
| October – December, 2019 | 7.90% |
| July – September, 2019 | 7.90% |
| April – June, 2019 | 8.00% |
| January – March, 2019 | 8.00% |
| October – December, 2019 | 8.00% |
| July – September, 2018 | 7.60% |
| April – June, 2018 | 7.60% |
| January – March, 2018 | 7.60% |
| October – December, 2017 | 7.80% |
| July – September, 2017 | 7.80% |
| April – June, 2017 | 7.90% |
| January – March , 2017 | 8.00% |
| October – December, 2016 | 8.10% |
| July – September, 2016 | 8.10% |
| April – June, 2016 | 8.10% |
| April 2015 – March 2016 | 8.70% |
| April 2014 – March 2015 | 8.70% |
Liquidity comparison – EPF vs PPF
EPF is more liquid than PPF. EPFO allows its members to withdraw complete EPF corpus if he/she is unemployed for 2 or more months. If the unemployment is for just a month, the member has the authority to withdraw 75% of the EPF corpus. Tax exemption that can be availed for the EPF amount withdrawn after 5 years of opening the account. The PF amount will gain interest even if you leave the company and do self-employment or work in companies not under the EPF Act. In this case, the EPF amount will be taxable and the maximum period for interest addition is limited to three years.
The retirement age decided by the EPFO is 58 years. Upon reaching 58, the members can withdraw the majority amount of the investment. A portion of the EPF corpus directed towards Employee Pension Scheme will be given to the member as a pension. The EPS pension amount is taxable.
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It is also possible to make partial withdrawals from EPF. However, in this case, the withdrawal is limited to certain circumstances and the money can’t be used for any other purpose. Although these withdrawals are termed as loans against EPF in common parlance, there is no need to return the partially withdrawn amount. Marriage, education, purchase of housing land or home, medical treatment, home loan payment, natural calamity, lockout, house alteration etc some of the reasons for which you can avail EPF loan. EPFO has recently added a special provision in the EPF Act to give a non-refundable COVID-19 emergency advance for the members.
PPF does not allow investors to withdraw money due to unemployment. It has a fixed term of investment of 15 years. Partial withdrawals from PPF investment will be possible only after the expiry of 6 years or the start of 7th year after the date of opening the account. There is no reason asked for such withdrawals. These withdrawals are capped. One should check with their respective bank to know more about the partial withdrawals. Some banks provide withdrawals after 5 years and some 7.
The maximum withdrawal amount can be lower of any of the following.
- 50% of the account balance as at the end of the fiscal year, the preceding year
- 50% of the account balance as at the end of the 4th financial year, preceding the running year
Investors can also avail a loan against the PPF account balance from 3rd to 6th year after the date of opening of the account.
The maximum amount that can be availed against PPF accounts is limited to 25% of the balance at the end of the 2nd financial year leading to the year in which the loan was requested.
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Drawbacks comparison – EPF and PPF
| EPF | PPF |
| ● Open only to employees of companies registered under EPF Act ● The EPF contribution is fixed at 12% of salary and DA for the employer and employee. ● Withdrawal before 5 years is possible but the amount is taxable ● The EPF rates do not match with the long term returns on investment of Mutual Funds or National Pension System (NPS). | ● Can not withdraw due to unemployment ● Partial withdrawals are allowed only after 5 years of account opening ● Lock-in period is 15 years ● Lower interest rate than EPF ● The PPF rate doesn’t change ● Long term returns are lesser than equity-linked instruments like mutual funds and NPS (National Pension System). |
Our inference
EPF and PPF investments are safe due to their statutory backing. There is equity exposure in EPF which makes it slightly riskier than PPF. Both are exempt to tax subject to certain mandates. EPF is a compulsory scheme for workers under the EPF Act whereas PPF is voluntary and is available to all Indian citizens. Both have advantages as well as disadvantages. If you are working for an EPF compliant company, you really don’t have a choice between both. The trend of investing in both the schemes is also on the rise. Carefully go through each of the investment scheme’s rules and compliances and stick on to the one which matches your financial plans. Feel free to reach out to us if you face any difficulty choosing between both. Express your thoughts in the comment section below.
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