EPF vs VPF vs PPF The choice between EPF VPF and PPF depends on your personal financial goals, risk appetite and preferences. Let us know what are their merits and what is the difference between them.
There are three main types of provident fund schemes in India – Employees’ Provident Fund (EPF), Voluntary Provident Fund (VPF) and Personal Provident Fund (PPF). All three of these government-backed retirement plans operate differently in terms of interest rates, taxation and withdrawal rules.
Many people think that they are all the same, but actually there is a lot of difference between them. Generally, EPF and VPF are better options for those who are salaried, while experts recommend PPF account for those who run their own business.
Investors should be very careful while taking decisions considering the different rules for taxation and withdrawal of EPF , VPF and PPF. In this article, we will compare these three plans and tell you which one is best for you.
What is PPF
PPF is a long-term savings scheme available to employees and self-employed individuals. It offers tax deduction on contribution, tax-free interest income and tax-free maturity amount. PPF has a lock-in period of 15 years, but partial withdrawals and loans are allowed after a specific period. PPF is better for individuals looking for long term savings with the flexibility of partial withdrawals.
What is VPF
VPF can be called an extension of EPF in a way, so that employees can voluntarily contribute more amount to their EPF account. The tax and withdrawal rules for VPF are the same as for EPF . VPF is beneficial for individuals who want to grow their retirement savings by increasing the amount deposited in EPF.
EPF for whom
If you are an employee, then EPF is mandatory. If you want to contribute additional funds to your EPF account then you can consider VPF.
What is the eligibility of these schemes
EPF is mandatory for employees working in organizations registered under EPFO (Employees’ Provident Fund Organisation, established through the Employees’ Provident Fund and Miscellaneous Provisions Act 1952), while both VPF and PPF are open to all individuals including non- salaried .
How much contribution in what
Contribution to EPF is made by adding the employee’s basic salary and dearness allowance and the employer is also bound to pay an equal amount, while both VPF and PPF contributions are voluntary. Only salaried individuals can sign up for VPF, while both salaried and non-salaried individuals can contribute to PPF.
Tax Benefits and Returns
All the three schemes have been given tax benefits under section 80C of the Income Tax Act. However, 10% TDS is deducted on EPF balance if it is withdrawn before completion of 5 years of service and the amount is above Rs.50000. In terms of returns, both EPF and VPF offer the same rate of interest, which currently stands at 8.15% per annum. PPF offers an interest rate of 7.1% compounded annually.
Withdrawal rules
EPF offers partial and full withdrawal options subject to certain conditions. PF allows full withdrawal. It is taxable only if withdrawn after completion of 5 years and before the lock-in period, whereas PPF has a lock-in period of 15 years, after which partial withdrawals are allowed.
Total withdrawal from EPF/VPF can be done only after the age of 58 years. Partial withdrawal is allowed before the age of 58 for purposes such as marriage, medical, house building and education. As per the amended rules, withdrawal can be made up to 75% in case of unemployment of one month.
If the money is withdrawn before the completion of at least five years from the date of first contribution, it will be taxable. The work done in the previous company during the period of five years is also included. Withdrawals made after five years are exempt from tax. PPF allows withdrawal after 6 years from the date of account opening.
Advantages and disadvantages
EPF offers a guaranteed rate of return and is risk free. This makes it an ideal investment tool for retirement planning, as the contribution percentage is fixed and is compulsorily payable by both the employee and the employer.
VPF is only for salaried individuals and the employer is not liable to contribute an equal amount. PPF offers higher interest rates and is open to all individuals, but has a long lock-in period and comes with limited withdrawal options. There is no involvement of the employer in these.
Selecting the right provident fund scheme depends on your individual financial goals and circumstances. If you are a salaried individual looking for a risk-free investment vehicle, then EPF and VPF are great options. If you are self-employed, PPF is a good option, provided you are comfortable with a longer lock-in period. Ultimately, each plan has its advantages and disadvantages, so it’s important to weigh these factors before making a decision.
Taxation rules
When it comes to taxes, EPF and VPF contributions are eligible for tax deduction under section 80C, while PPF contributions are fully tax-deductible. Interest earned on EPF and PPF is tax free, while VPF interest is taxable. PPF is a suitable option for long term tax saving and money growth, while EPF and VPF are suitable for long term retirement savings.
