Friday, November 21, 2014

Difference between Public and Employee Provident Fund - PPF vs EPF

People often mistook Public Provident Fund or PPF for Employee Provident Fund or EPF, though both are provident fund and backed by the government of India, they are independent of each other. The main difference between PPF and EPF is that former is totally controlled by you and only you can make a contribution on that account, on the other hand, EPF is for both you and employer to contribute money.


If you have seen your payslip closely, you will find out that your employee deposit certain amount of money, proportional to your salary to your EPF account. In India, most company count EPF contribution as part of Employees total compensation or package, so you feel that it's more or less your contribution but that's not true.

You cannot withdraw EPF money while being on the same company for the certain period of time, known as the locking period, but when you change job you will be given an option whether to withdraw your EPF money or transfer it to your next employer. Many people prefer to just take the money when they change the job to avoid hassle of transferring of EPF account.


Coming back to PPF account, this is something you need to open, your employer has nothing to do with that. People open Public Provident Fund account with two main purpose, first tax saving and second long term investment because PPF provides 8.5% per annum (8.7% for the year 2014 and 2015) and, more importantly, both contribution and maturity amount is tax free, unlike tax saving fixed deposit, where the only contribution is subtracted from your taxable income but maturity amount is taxed.

Apart from the basic fact that PPF is your personal provident fund account and only you can contribute there, and EPF contribution is made by your employer and you, there are a couple of other differences which we will explore in this article.  By the way, you can also check your EPF balance online now days.




Difference between PPF vs EPF

1. The first difference between EPF and PPF account comes from the fact that how much one can invest and how many times in a year? In EPF, both employee and employer contribute 12% of employees monthly salary and it is deducted at source. On the other hand, PPF investment is subject to deposit. You can deposit any amount between 500/ and Rs 1.5 lakh, but maximum amount you can invest in PPF is only 1.5 lakh , which is also increased from 2014-15 financial year. You can also invest this amount in the maximum of 12 installments. If you do monthly deposit then make sure to do it before 5th of the month, because if the fund is realized before 5th then you will get interested for that month, otherwise it's a free loan to the government. Be little bit more careful if you are paying by cheque because they will only count the day when your cheque was realized, not when your cheque was received.


2. The second major difference between EPF and PPF account is that anyone, except NRIs, can invest in public provident fund scheme but only a salaried person can invest in EPF. Yes, self-employed persons don't have EPF account and that may be the main reason for why PPF account exists in first place. You can even open your PPF account online with SBI, ICICI and Axis bank


3. The third difference between Public Provident comes from different interest rate they offer. PPF offers an interest rate of 8.5% per annum in general but for the year, 2014-15 is giving the interest rate of 8.7% while EPF offers around 8.7% per year. Anyway the rate is decided in April each year and published in print media.

4. The fourth difference between EPF and PPF comes from the fact of loan options. In EPF,   you can make withdrawals for marriage or construction of a house by presenting suitable documents. Loans also possible but not in favor of contributors and EPFO. While on your PPF account, You can take loans of up to 50% of the balance of the 4th from the 6th year onwards. For all future years the same rule or the 50% of the balance in the account will apply.
5. Maturity is another important difference, EPF Can be closed when switching jobs. Can transfer account to new company till retirement? While maturity period of 15 years. Can be extended indefinitely by extending for 5 years each after that.

6. Tax Treatment
Another difference between Public Provident fund and EPF comes from the point that EPF Contribution gets Section 80C benefit. Maturity is also tax-free if the contribution is for over 5 years including transfers from different companies. PPF Contribution gets Section 80C benefit. Maturity is also tax-free. See this article to learn more about taxation on PPF and fixed deposit.

7. Premature withdrawal
One more significant difference between them, Though both EPF and PPF allows premature withdrawal, while PPF is a 15-year investment, you can withdraw part of money after 5 years. You can withdraw EPF money when you change job


8. Convenience
EPF, Good for the contribution as deducted from the salary itself. Poor for withdrawal or for loans. While PPF Poor for the contribution, withdrawal, and loans. Good for the quantum of investment and frequency of investment.


Difference between PPF and EPF Account in India
After evaluating both EPF and PPF on above points, all I can say that EPF is slightly more beneficial than PPF because of the following reasons:

  •     Employer contribution: Employer contributes to funding in case of EPF, whereas no such contribution occurs in case of PPF.
  •     Liquidity: An EPF holder can withdraw the amount for personal needs anytime by providing necessary documents, while one holding a PPF cannot do so till the completion of its tenure.


That's all about the difference between PPF and EPF account. Though both the investment instruments have their own sets of pros and cons, by looking at the points given above we can clearly observe that EPF has the edge over PPF in terms of employer contribution and liquidity. Salaried individuals, who have the option of contributing to EPF schemes, should ensure their contribution to the fullest extent. PPF, however, is a good alternative for people who are self-employed or are from unorganized sectors since EPF is not available to them. By using EPF and PPF you can reduce your taxable income significantly which will help you to bring down your taxation slab, intern saving lot of money for you and your family.

2 comments:

  1. Can you withdraw money from Employee provident fund before maturity or while you still working?

    ReplyDelete
  2. Can you please provide me EPF Customer Care Number for the solution of my queries regarding the EPF services.

    ReplyDelete