PPF vs EPF: EPF or Employees Provident Fund is a government backed retirement benefit scheme designed only for salaried individuals whereas PPF or Public Provident Fund is designed to provide old age income security to the PPF account holder. both give income tax exemption ₹Investment of 1.5 lakh in a financial year under section 80C of Income Tax Act but EPF investment is mandatory for salaried person whereas PPF is an optional investment tool available to all earning individuals. However, is it wise for an earning person to invest in a PPF account or can one have another option to get higher returns and save income tax?
PPF Vs EPF Interest Rate
Advising salaried individuals to consider Voluntary Provident Fund (VPF) instead of PPF, if the investment is for retirement funds; Sebi registered tax and investment expert Jitendra Solanki said, “If a salaried person is looking for a tax saving retirement-oriented investment tool, he or she has VPF, which is much better than PPF. In VPG, the same 8.50 per cent EPF interest will be available. The rate per annum whereas the PPF interest rate is only 7.1 per cent. But, there is more liquidity in the PPF account and hence VPF can be chosen over PPF only if the investment objective is to build a retirement fund.”
Solanki further said that after rationalization of provident fund, EPF interest earned on investments higher than ₹2.5 lakh per annum is taxable if both the employee and the employer contribute to the EPF account. Hence, VPF should be chosen keeping this rationalization in mind.
PPF vs EPF vs VPF
How to choose VPF and increase your EPF investment; Manikaran Singhal, Founder, Goodmoneying.com said, “As per the Employees Provident Fund Organization or EPFO rules, a salaried person can contribute more than 12 per cent of his basic salary to his EPF account by asking the HR of his office. at the time of joining the office or at the beginning of the new financial year. He said that an employer easily agrees to VPG as they do not need to increase their monthly contribution when an employee opts for VPF. An employer is not required to contribute more than 12 per cent of the basic salary of the employee, even if the employee has opted for VPF.
Manikaran Singhal said that an employee has the luxury of choosing between EPF and PPF and the employee should try to invest in EPF through the VPF route if he is looking for retirement-oriented investment tools. . This helps in achieving higher returns of 1.40 per cent without increasing the risk factor as both PPF and EPF are 100 per cent risk free investment options. He said that if the investment objective is to save income tax and get higher returns at any cost then VPF is better for salaried person, but for those looking for liquidity during financial emergency, PPF is better as it comes to maturity under certain conditions. Allows prior withdrawal. Which is not so easy in case of EPF withdrawal.
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