As we know, retirement is a critical phase of life for which planning is a must. Retirement plans help provide financial support during your post-retirement period, enabling you to meet your post-retirement goals. Amongst the different Types of Retirement Plan available in the market, EPF & PPF are considered to be the safest options for long-term savings. Where EPF is meant for salaried employees, PPF is meant for all. The choice of the plan depends on expected returns, income stability, tax benefits, liquidity requirements, etc. In this article, we will make a comparison between the two, letting you make an informed decision about retirement planning.
Features of EPF
Provided are the features of EPF:
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Mandatory Contribution:
Every salaried employee with a basic salary of up to INR 15000 per month is required to make contributions towards EPF. Additionally, employers are also required to contribute the same amount towards the fund.
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Interest Rate:
The interest rate is declared by the government of India on an annual basis at approximately 8.15% annually, which is tax-free.
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Withdrawal Rules:
It allows withdrawal of funds, but under certain pre-specified conditions, like construction or purchase of a house, education, medical emergencies, etc. To withdraw the complete amount, an employee has to resign & remain unemployed for a period of 12 months.
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Tax Benefits:
The contributions made by the employee are eligible for a tax deduction u/s 80C of the Income Tax Act, 1961. The interest earned, along with the maturity proceeds, will be exempt from tax.
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EPFO Claim Status:
Whenever the claims are raised, the EPFO portal allows employees to track the status of the claim online.
Features of PPF
Provided are the features of PPF:
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Flexible Contribution:
It allows investors to deposit any sum between INR 500 & INR 1.5 lakhs either in a lump sum or in instalments.
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Interest Rate:
The interest rate is fixed by the Government of India every quarter, which is currently 7.1 compounded annually & is tax-free.
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Lock-in Period:
It has a lock-in period of 15 years, which allows for withdrawal of funds after the 6th year. Also, it allows investors to raise a loan against the balance from the 3rd year.
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Tax Benefits:
The contributions made towards the fund are eligible for a tax deduction maximum up to INR 1.5 lakhs u/s 80C of the Income Tax Act, 1961. Also, the maturity proceeds & interest thereon are also exempt from tax u/s 10(11).
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Accessibility:
Any individual is allowed to open a PPF account irrespective of their employment status.
Difference between EPF & PPF
Selecting an appropriate Retirement Plan is one of the most crucial financial decisions to be made for long-term stability. Amongst the two safest plans, namely EPF & PPF, understanding the differences between the two will help an individual choose one that best aligns with their financial objectives:
| Basis of Difference | EPF | PPF |
| Target Audience | It is meant for salaried employees. | It is available for any Indian citizen, including self-employed individuals as well. |
| Contribution | It involves 12% of the basic salary to be contributed towards the plan, both from the employer & the employee. | It provides flexibility to choose any amount between INR 500 & INR 1.5 lakhs annually. |
| Employer’s Contribution | The employer is also required to contribute equally. | It does not involve any contribution to be made by the employer. |
| Interest Rate | The Government of India decides the interest rate, which varies between 8-8.5% annually. | It has a fixed rate of interest set by the Government of India between 7-7.5% per annum. |
| Interest Taxation | Contributions made below INR 2.5 lakhs are exempt from tax. Any interest on contributions made over & above INR 2.5 lakhs is taxable. | Any interest earnings are exempt from tax. |
| Tax Benefits | The contributions made towards the fund are eligible for a tax deduction u/s 80C of the Income Tax Act, 1961. | The contributions made towards the fund are eligible for a tax deduction u/s 80C of the Income Tax Act, 1961. |
| Tax on Withdrawal | If withdrawals are made after 5 years of contributions, they are tax-free. Any withdrawals made before 5 years are taxable. | They are exempt from tax at the time of maturity, i.e. after 15 years. Additionally, any premature withdrawals are not taxable. |
| Maturity Period | There is no fixed maturity date. | It has a fixed tenure of 15 years with a further extension of a block of 5 years. |
| Withdrawal Facility | It allows withdrawal of funds partially for some specific reasons, such as medical emergencies, education, buying a house, etc. | It allows withdrawal of funds once a period of 6 years is met, for some specific reasons. |
| Loan Facility | It allows a loan to be raised against the balance once a period of 5 years of service is completed. | It does not allow any loan facility. |
| Premature Withdrawal | It allows premature withdrawal of funds once a period of 5 years is met, subject to certain terms & conditions. | It allows premature withdrawal of funds after 5 financial years are met, subject to certain terms & conditions. |
| Risk Factor | It involves low risk, as it is backed by the government with a fixed rate of interest. | It involves low risk, as they are backed by the government with assured returns. |
| Liquidity | They are less liquid as they allow funds to be withdrawn partially. | They become liquid once a period of 6 years is met. |
| Best For | It best suits employees who are looking for retirement planning with the support of their employer. | It best suits individuals who are looking for long-term tax-saving investment plans. |
EPF or PPF – Which to Choose?
- In case of a salaried individual with EPF benefits, opt for EPF as it offers higher returns & contributions made by the employer.
- An individual should opt for a PPF in case an individual is looking for assured returns, control, or tax-free maturity.
- Some investors opt for a combination of both, i.e. PPF for an added tax-free growth & EPF for savings to be made by the employer.
