EPF is an arrangement in which the salaried employees can make a contribution from the salary they draw each month towards a fund. Similarly, PPF is also a fund in which any person can make a contribution. These two are major vehicles of savings, in which investment is made to secure future, and also to mobilize savings of the general public, which reap interest,
Provident Fund is an investment fund, wherein specified individuals can make the contribution, and a lump sum amount which includes the principal and interest thereon is paid to the holder, either on maturity or on retirement. It is of two types Employees Provident Fund (EPF) and Public Provident Fund (PPF). To further understand the two schemes along with their differences, take a read of the article presented to you.
Contents: EPF Vs PPF
- Comparison Chart
- Key Differences
- Key Terms
|Basis for Comparison||EPF||PPF|
|Meaning||Employees Provident Fund or EPF is a scheme started by the Government of India in which all the employees drawing salary more than 6500 has to invest a part of their income into the fund as savings.||Public Provident Fund or PPF is a scheme started by the Government of India in which all the citizens of the country can invest their money as savings.|
|Right to Invest||Only salaried persons can invest.||All the citizens of India, including salaried persons, but excluding NRIs.|
|Tenure||The full amount is paid to the employee at the time when he retires or resigns (transferred to his new PF account with the company where he has started working).||The amount is paid to the person after 15 years. Thereafter, it can be extended, on application.|
|Contribution||Both employer and employee.||The person concerned (guardian in case of minor and any member in case of HUF).|
|Governing Act||Employees Provident Fund And Miscellaneous Provisions Act, 1952.||Public Provident Fund Act, 1968.|
Definition of EPF
EPF refers to Employees Provident Fund, a scheme that is available only to employees in which their employer and the employee himself can invest in the fund and in which he gets an annual interest, at a specified rate, which is usually more than the interest the banks pay. The fund is maintained by the Employees Provident Fund Organization.
It is a long-term process, i.e. till the employment lasts. If the employee retires, he is paid the whole amount or if he resigns from the job then the entire amount is either paid to him or is transferred to his new EPF account with the company where he has started working. It is mandatory for every employee who is drawing a salary over 6500 per month to contribute in the EPF, however, the employer’s contribution is voluntary.
Definition of PPF
PPF refers to Public Provident Fund, a scheme available to the general public. All the citizens of India can invest amounts in this fund in which they get an annual interest at a specified rate, which is usually more than the interest provided by the banks. The scheme is introduced by the National Savings Institute, which works under the Ministry of Finance.
The fund can be opened in any post office or any branch of the State bank of India or any other nationalized bank authorized by CG. The tenure of the scheme is normally 15 years for an individual, but it can be extended on his application for one block (5 years). The minimum amount that can be invested is Rs 500. PPF is governed by the Public Provident Fund Act, 1968.
Key Differences Between EPF and PPF
- EPF is available only to salaried employees whereas PPF is available to everyone, whether salaried or not, but excluding NRIs.
- The term of EPF is till the employment exists, i.e. if the employee retires or resigns the amount is paid to him while the term of PPF is 15 years but can be extended on an application of the person concerned.
- Employer and employee both can do the contribution in EPF; however, the contribution of the employer is voluntary. On the other hand, the contribution in PPF can be done by the person concerned; however, an individual can contribute on behalf of HUF and Guardian in the case of a minor.
- It is mandatory for all salaried employees who draws salary up to 6500 to contribute in EPF, but a contribution to the PPF is voluntary.
- EPF is governed by Employees Provident Fund And Miscellaneous Provisions Act, 1952 whereas PPF is governed by the Public Provident Fund Act, 1968.
Key Terms related to EPF & PPF
In the case of EPF, the employer’s contribution is exempted from tax while the employee’s contribution is taxable; however, it is eligible only when it is claimed under the section 80C of Income Tax Act. The interest is also tax-free up to a specified rate and even the amount received on maturity is tax-free provided the contribution is made for more than 5 years including the transfers.
On the other hand, the person contributing in PPF is eligible for claiming the deductions under the section 80C of Income Tax Act and Interest on the amount is also tax-free as well as the amount received on maturity is also free from tax.
Both EPF and PPF provide the facility of Nomination so that in the case of death of the person concerned the amount is paid to the nominee. This can be done in favor of mother, father, spouse and children excluding brother and sister. Also, there can be more than one nominee provided the account holder mentions his name at any point in time.
Nomination in favor of any person other than mentioned above is deemed invalid but in case it is done, then the amount is paid to the legal heirs of the deceased account holder.
There are many similarities between both the funds some of them are-
- Both of them are created for the purpose of welfare, i.e. one for employees and another for the general public.
- Both of them provide the facility of nomination.
- The aim of the two is to promote small savings which are for long periods.
- Both of them can claim deductions under section 80C
After discussing a lot about the two, it can be said that both are very much distinct from each other and there is no chance of getting confused between them. The reason of both being popular is the lucrative interest rate, a person can fetch from these, which is not even provided by the banks. The other benefit is the lock-in period, i.e you just have to invest the amount and take its advantage in the future in terms of retirement benefits. However, it can be withdrawn if necessary, subject to some conditions.