Voluntary Provident Fund (VPF) vs Public Provident Fund (PPF): Which Is Better?

Planning your retirement can be overwhelming; however, it is necessary to save enough money to secure your future. If you want to invest in schemes for retirement, there are a bunch of them available. Choosing to invest your money in schemes can be less intimidating when you have a clear set of financial goals for the future and understand your current financial standing. 

Provident Funds can be an ideal option if you prefer average returns with a secured corpus, VPF and PPF are popular schemes that are tax-saving options covered under Section 80C of the Income Tax Act, 1961. Most individuals are not sure as to which of the two is a better option. We have decoded the same in this article by covering the following:

What Is VPF?

Voluntary Provident Fund (VPF) is an extension of the Employees’ Provident Fund (EPF). Under EPF, employees working in eligible organisations should mandatorily contribute 12% of their basic salary, and the employer will also contribute the matching amount.

EPF contributions are locked in until the employee retires or is eligible under a certain condition to make a premature withdrawal, or when you are unemployed for more than 2 months. If the employees want to contribute more than the minimum requirement, they can do so under the Voluntary Provident Fund (VPF) provisions. However, the employer’s contribution remains the same.

If you want to invest in the VPF scheme, you can contact your organisation’ HR department and submit a registration form. The respective amount will be deducted from your salary and invested in your EPF account.

Who Should Invest In VPF?

To invest in VPF,

• Available only for salaried individuals
• Should be working in an organization with 20 employees
• Employees who earn a salary of more than Rs 15,000 can invest in VPF

Investment To VPF

An employee can contribute voluntarily to the scheme, and contribution to VPF can be over the limit of 12% to the EPF account.

Taxation On VPF

According to section 80C, the deduction is available for contributions made to VPF up to Rs 1.5 lakh under the Income Tax Act 1961. When the scheme matures, the interest received is also exempt. 

What Is PPF?

Public Provident Fund (PPF) is one of the most popular tax-saving options under Section 80C. All resident Indians, including those working in the informal sector and self-employed, students, and retired individuals, can invest in PPF. 

The Central Government of India is responsible for looking after PPF operations and interest rates that are provided.  The maturity of PPF is after 15 years. However, you can extend it to 5 more years with or without extra contributions.

Taxpayers can claim tax deductions of up to Rs 1,50,000 a year by investing in PPF. A minimum of Rs 500 should be invested in a year, and you cannot invest more than Rs 1,50,000 a year. The returns offered by PPF accounts are fixed and are backed by sovereign guarantees.

Who Should Invest In PPF?

Any Indian citizen is eligible to invest in PPF schemes. NRIs are not eligible to open an account under the PPF scheme. However, they can keep the account that has been opened earlier, before becoming an NRI.

It is to be also noted that, HUFs also cannot invest in PPF schemes.

How Much To Invest?

The minimum contribution by the individual is Rs 500 every year until maturity, and the total contribution in a year cannot exceed Rs 1.5 lakhs. Additionally, the number of deposits cannot exceed 12 in a year.

However, after 7 years from the date of opening a PPF account, premature withdrawal is possible. 

Taxation On PPF 

The total amount of Rs 1.5 lakhs is exempted from tax under section 80C, and the interest earned and the amount withdrawn at the maturity of the fund is also exempt from taxation. 

Comparison Of VPF With PPF

The following table gives the comparison of VPF with PPF:

Conclusion

Both VPF and PPF are excellent tax-saving options. They are backed by sovereign guarantees and offer a fixed rate of return on the investments. Making an informed choice while investing in your retirement is based on the financial stability, liquidity needs and withdrawals to align your retirement plans and objectives.