PF vs PPF: Which is the Best Option?

The introduction of several saving schemes by the Government of India aims to foster financial wisdom amongst the general population. One notable saving scheme is the Provident Fund (PF). The savings scheme can be either compulsory or voluntary. The Employee Provident Fund(EPF) is mandatory, while the Public Provident Fund(PPF) is voluntary. The interest rate for EPF for FY 24-25 is 8.25%, which has been recently announced, and the Interest rate for PPF is 7.1%, which remains the same.

The contribution to EPF is reduced to 10% from 12% for non-government organisations. Employees’ Provident Fund (EPF) is generally referred to as PF. This fund exists to help employees accumulate a considerable sum for their retirement. PF is a government-backed scheme. We have covered the following in this article:

What is EPF

Employees’ Provident Fund (EPF) is a compulsory deduction in the salaries of employees working in eligible organisations. This amount is deposited into the EPF account of the employee, and the employer shall also contribute with a certain amount. The main intention of EPF is to help employees save and accumulate a significant sum of money for their retired life so that they remain financially independent. EPF is managed by the Employees’ Provident Fund Organisation (EPFO) as per the Employees’ Provident Fund and Miscellaneous Act, 1952.

The amount in the EPF account earns an attractive rate of return, and it is much higher than what a regular savings bank account provides. If an employee wants to contribute a higher amount than the minimum required contribution, then that excess contribution is termed as ‘Voluntary Provident Fund’. However, the employer’s contribution will still remain the same. The EPF contributions are eligible for tax deductions under the provisions of Section 80C of the Income Tax Act, 1961.

What is PPF

Public Provident Fund (PPF) is a popular savings scheme offered by the government. It is one of the most popular tax-saving investment options covered under Section 80C. The main reason behind the introduction of PPF is to help individuals working in all sectors (including informal jobs) save and invest small amounts whenever they want. The PPF account offers a higher return than savings bank accounts.

The catch here is that the investments in PPF accounts are lock-in for a period of 15 years. One can invest a maximum of Rs 1,50,000 a year or Rs 12,500 a month. A minimum investment amount of Rs 500 should be compulsorily made in a year. The taxpayers can avail of tax deductions of up to Rs 1,50,000 a year and can save up to Rs 46,800 in taxes.

Comparison of PF with PPF

Liquidity of EPF vs PPF

EPF: You can withdraw 75% of your EPF campus if you are unemployed for 1 month and total corpus if you are unemployed for 2 months. In such cases, you can also let the money stay in the account but you'll stop earning interest on it after 3 months and all withdrawals will be taxable.

PPF: You cannot withdraw money due to unemployment and there is a lock-in period of 15 years. Partial withdrawals are generally allowed from the 7th year onwards, but check your bank's website for the withdrawal caps and other conditions.

The better option of PF vs PPF

Both EPF and PPF come with their set of pros and cons. One significant benefit of EPF is that it is transferable across employers and partial withdrawals are available on certain conditions. With EPF, you don’t have to go through the hassle of depositing the money from your savings account as it is deducted directly from the salary.

One drawback of EPF is that the contribution is compulsory every month. On the other hand, PPF offers a much-needed relief as you can contribute whenever you can. However, the lock-in period of 15 years might sometimes seem too long. You can avail loan against the balance in your PPF account. The maturity proceeds received from both EPF and PPF accounts are tax-free.

Conclusion

Both PPF and EPF are government schemes. They are tax-saving options covered under Section 80C of the Income Tax Act, 1961. The sovereign guarantee backs both the schemes and individuals can choose the one that seems suitable for them.

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