Employees Provident Fund Vs Public Provident Fund, Which is Better?
In today's scenerio there are multiple options for tax savings including Employees Provident Fund, Public Provident Fund & National
Pention System. Peoples planning for thier retirement more focuses on Employees Provident Fund or Public Provident Fund but they confused between the two
so we are briefing the two so you can make your choice.
Employees Provident Fund (EPF) is governed by the Employees Provident Fund Organisation (EPFO) and is only for salaried individuals. This is a mandatory
savings scheme that is applicable to employees of a company with more than 20 employees or for employees whose salary is above the minimum amount stipulated.
On the other hand Public Provident Fund (PPF) is offered by banks and post offices to everyone, regardless of whether you are salaried or not.
2) Contribution rules
Investing in Employees Provident Fund (EPF) is mandatory for the salaried, provides the organisation you are working in conforms to the EPFO regulations.
Up to 12 per cent of your Basic salary + Dearness Allowance (DA) is deducted and contributed to your EPF account. In addition to this, your Employer’s contribution, which is equal to yours.
If you want to increase your contribution to EPF, you can request your employer and apply for a Voluntary Retirement Scheme (VPF), which is an extension of EPF.
Keep in mind that VPF contributions are completely up to you, and while you may increase your contribution, your employer is not obligated to do so.
PPF is also a voluntary retirement scheme that was introduced to encourage savings for retirement. In a single financial year, you can make a minimum deposit of Rs 500 and a maximum of Rs 1.5 lakh.
The contributions can be in lump sum or in instalments.
3) Rate of interest
The interest rate on Employees Provident Fund (EPF) is declared by the EPFO every year. For now, it is 8.55%. The Public Provident Fund (PPF) interest rates are linked to the 10-year government bond
yields and change on a quarterly basis. For the last quarter of the 2018-19, the PPF interest rate stands at 8%.
4) Tax benefits
The maturity amount you get when your Employees Provident Fund (EPF) matures is examted from tax only if you have a track record of at least five years of continuous service.
If you switched jobs within this time period, you can avoid tax by transferring your existing EPF account to your new employer. In case of unemployment, your Employees Provident Fund (EPF) interest for that particular
period is taxable. Public Provident Fund (PPF) has an EEE tax status. This means your PPF investment is tax-free at all levels, contribution, accumulation, and maturity.
5) Lock-in period
An Employees Provident Fund (EPF) account has a lock-in period of five years to get tax benefits. However, you can transfer the same account with every new employer.
You can withdraw the maturity amount either on retirement after the age of 55. In case of PPF, there is a lock-in period of 15 years.
6) Premature withdrawal
You can make tax-free Employees Provident Fund (EPF) withdrawals after the completion of five years of continuous service. If you withdraw before completing five years,
you will be charged 30 per cent TDS in the absence of PAN details and 10 per cent if you have submitted the PAN details with EPFO. Also, the premature withdrawals are
only allowed in case of wedding of childrens, repayment a home loan, and medical treatment, among others.
The timeline varies for each. For example, you can withdraw for marriage expenses only after 7 years. According to the new rules you can withdraw 75 per cent of EPF if you are unemployed
for at least a month. In this case, your account is maintained with EPFO until you get another job. Also, you can withdraw the rest, after two months of being unemployed.
From the seventh year onwards, you can withdraw a sum of money from your PPF account, but there are certain thing to follow. You can withdraw the lower amount between the 50 per cent
of the balance during the end of the fourth year or 50 per cent of the balance at the end of the year before you withdraw. Remember that you can withdraw only once a year,
This amount is free from taxes.