EPF vs PPF- Employees Provident Fund vs Public Provident Fund
In this article we will discuss and compare the facilities, benefit, advantage & disadvantage everything from investment point of view between EPF and PPF. By the end of this article you will exactly know which one is better to invest EPF or PPF.
Employees Provident Fund (EPF): EPF vs PPF
Employees Provident Fund (EPF) is available only for such employees for such organization where employee strength is more than 20 nos and employee getting salary not more than INR 15000/-( Basic+DA+ Retaining Allowance). Employees Provident Fund is comes under EPF and MP Act, 1952.
Employees getting salary more than INR 15000/- also can become member of Provident Fund voluntarily by submitting joint declaration (employee and Employer) to Provident Fund commissioner.
PF contribution rate at present is 12% for employees and 12% for employer. This means employer also contribute for their employees covered under EPF. Even employer contribute 1% more for their employees.
The contribution break up is provided in the below table for better understanding:
Here EDLI means Employees Deposit Link Insurance
Interest rate on the investment under EPF was 8.50% for 2020-21 financial year. The interest rate on provident fund may fluctuate time to time.
There are multiple benefit available to Provident Fund member or subscriber. All the available benefit in details explained below :
Investment
Provident Fund can be considered as systematic investment where employee can earn a good profit via interest paid on it. Even employer also invest for their employees at same amount of money invested by employees.
The contribution towards provident fund is deducted from the monthly salary of the employees and deposited towards investment by every employer within 15th of the next month.
Advance
For some specific reason employee can take advances from provident fund to meet their sudden personal financial need subject to eligibility. An employee can take advance from provident fund for illness, construction of house, marriage etc.
Security & Future Guarantee
The investment though provident fund is totally secured and risk free as it was governed by Employees Provident Fund Organization covered under EPF and MP Act, 1952.
After leaving job or employment employee can withdraw the amount after 2 month from the last contribution if he/she not wish to join another company or organization. If the employee continues his/her job in another company then the same provident fund account will be continued by default.
If an employee cross 9.6 years of continuous service, he/she will be eligible to get monthly pension after his retirement from provident fund.
If an employee died during the service period the nominee or legal heir will be eligible to get the amount of provident fund, monthly pension and the benefit of EDLI up to maximum amount of 7 lacs subject to eligibility.
Tax Benefit
The tax benefit under section 80C for provident fund not exceeding 2.50 lacs effective from 1st April, 2022 which was earlier 1.50 lacs when you finally withdraw the amount from provident fund.
If you leave your job before 5 years and withdraw the provident fund amount than it will attract tax. You will be waived off by submitting Form 15G at the time of application for withdraw.
Transparency of Investmentand online Facilities
Employee can access the details of their investment/deposits in the just few steps online. Every provident fund subscriber will get UAN number to access their online PF portal.
Employee can check out their provident fund passbook whenever they want via multiple mode like SMS, miss call, via official website or UMANG APP.
For withdraw, the system is completely online. Employee can apply for withdrawal from anywhere subject to eligibility of withdrawal.
In India, all working class people have not employed in a structural organization or company where they get Provident Fund facilities. Even a large number of people engaged in unorganized sector or self employed.
So, it is not possible for everyone to become a member of EPF as per their choice as there is some condition that need to fulfil to become a EPF member. So, public provident fund the fill the gap.
Public Provident Fund (PPF) is an investment plan similar to Employees Provident Fund (EPF) where every Indian citizen can invest except NRI. One can open a PPF account from most of the nationalized and private bank or post office. The interest paid on the investment in PPF is also good as compared to EPF.
Public Provident Fund is comes under Government Saving Promotion Act, 1873. The Rate of return on Investment made on PPF is 7.10% as on 01/07/2022. The lock in period for PPF account is 15 years that you can expand again for another 5 years slot for multiple time.
The benefit available to PPF investors are shortly explained below:
Investment
Public Provident Fund also considered as a systematic investment where investor can earn a good amount of return as interest. One can make investment in PPF in between INR 500/- to 1.50 Lacs per annum.
The frequency of investment need to fix before entering into the investment plan i. e monthly, quarterly, half yearly or annually.
Advanceor Loan
basically investment through PPF is a long term investment where you get only a few option for Advances or loan. As its has a lock in period of 15 years so there are many restriction on partial withdrawal or taking loan.
However in 3rd and 6th financial year you can take loan in Form 2 from your PPF account which is not more than 25% of the total investment. The repayment period for the loan is maximum 36 month from the month of taking the loan.
On the amount taken from PPF as loan you have to pay interest earned on your investment plus 2% extra. For example, if PPF interest rate is 7.10% then your total payable interest on your loan would be 9.10%.
Security
The investment made through PPF is totally secured. And after the expiry of the investment period you will get the total invested amount with interest in your account without much hassle.
Tax Benefit
The investment made towards PPF is tax- deductible under section 80C of the Income Tax Act. and the amount you receive after maturity of the investment period is also tax free.
Transparency of Investment
You can access your PPF account online as many banks and post office provide access to your PPF account online. Even you can open a PPF account from your bank using net banking facilities.
But the loan facilities and withdrawal facilities or closure of your PPF account you need to visit the branch.
Comparison between EPF vs PPF
The below table will show a quick comparison between EPF vs PPF:
Parameter
EPF
PPF
Who can Invest
Only salaried employee covered under EPF Act whose salary is not more than 15K.
Any Indian citizen can open a PPF account and invest. Even a minor can open a PPF account.
Governing Body
It is governed by EPF and MP Act, 1952.
It is governed by Saving Promotion Act, 1873.
Interest Rate
8.50% (Last financial year)
7.10% (Last financial year and present rate)
Flexibility of partial Withdrawal
Flexible.
Strict or Rigid.
Co- Payment
Employer will contribute same amount of money for their employees.
No such facilities in PPF. However parents can co pay in case of minor .
Security
Same and secure investment.
PPF is also considered as same and secure investment.
Tenure of Investment
No lock in period or withdraw after leaving job or transferable till retirement even if you change your job multiple time.
15 years lock in period.
Tax Benefit
Tax benefit under section 80C. And the maturity amount is tax free if you leave your job after completion of 5 years.
Tax benefit under section 80C. And the maturity amount is tax free.
Comparison Table.
Conclusion:EPF vs PPF
Both the investment plan EPF and PPF comes with its own advantage and disadvantages. Where to become a EPF member you mandatorily required to work in a formal establishment but in PPF you don’t need to work in a company or establishment.
In EPF the benefit is more as compared to PPF along with the interest rate but not everyone can invest in EPF whereas in PPF anyone can invest easily.
EPF is more flexible than PPF in terms of partial withdrawal Etc.
But from my point of view EPF is far better than PPF. If you are an employee at a formal organization or comes under the purview of EPF and MP act then it is advisable to invest though EPF.
If you are a self employed or working in unorganized sector or you are working at a company but your salary more than the EPF ceiling than you can go for investing through PPF.
Don’t forget to share your view in the comment section below.
