EPF vs PPF: Eligibility, Tax Benefits, Maturity And Other Key Details

It is important to make investments early in career for financial security in the future. Two of the most popular instruments in India for making long-term investments for retirement benefits are EPF (Employee Provident Fund) and PPF (Public Provident Fund). 

Both schemes are government-backed, offering safe and attractive returns. These schemes have been designed as retirement savings plans. Though the schemes sound similar, they cater to different needs.

Here is a comparison of the two in terms of eligibility, tax benefits and maturity.

• EPF (Employees' Provident Fund): It is a retirement savings scheme for salaried employees. It is managed by the Employees' Provident Fund Organisation (EPFO). It aims to provide financial security post-retirement through contributions from both employees and employers.

• PPF (Public Provident Fund): It is a voluntary long-term savings scheme open to all citizens in India. The PPF scheme, managed by the Government of India, is available through post offices and designated banks.

Salaried employees working in organisations with 20 or more employees, registered under the EPF Act, are eligible to enrol under the provident fund (PF) scheme.  Companies with less than 20 employees can also offer EPF benefits to their workers. But companies with over 20 employees must be registered with the EPFO.

On the other hand, any Indian citizen living in India, including salaried, self-employed and retired persons, can open a PPF account. Minors can also have accounts opened by their guardians.

Both EPF and PPF fall under the Exempt-Exempt-Exempt (EEE) category, making them highly tax-efficient. Individuals can claim tax deductions of up to Rs 1.5 lakh per financial year under Section 80C of the Income Tax Act, 1961, against the PPF deposits.

In the case of EPF, the interest earned is tax-free if the employee has made contributions to the account for five years. On the other hand, the interest is taxed if withdrawals are made before five years. For PPF, the interest earned is tax-free throughout the tenure.

An EPF account lasts until the retirement of an employee. On the other hand, the maturity period for a PPF account is 15 years. Thereafter, it can be extended in blocks of five years each. However, both schemes allow partial withdrawals under certain conditions.  

For EPF, employees contribute 12% of their basic salary and dearness allowance (DA) and an equal amount is also contributed by the employer every month. In the case of PPF, investors can deposit between Rs 500 and Rs 1.5 lakh in a financial year, in a lump sum or instalments.

To conclude, both EPF and PPF are useful tools for building a secure financial future, but they serve different purposes. EPF is a good choice for salaried employees. PPF is an accessible option for all Indians seeking long-term wealth creation. It is important to evaluate your investment horizon and financial goals before investing in any of these schemes.