EPF vs PPF: 9-point guide on retirement benefits

People generally tend to plan for retirement a bit late in life. Both Public Provident Fund (PPF) and Employee Provident Fund (EPF) are two safest options to build a retirement corpus. The interest rates on both instruments are high among all instruments — PPF is at 7.1% and EPF is at 8.5%. A salaried person can also contribute an amount beyond the mandatory 12% contribution from one’s salary in voluntary provident fund (VPF). Money9 gives you a nine-point comparison.

1. Nature

Both the instruments are long-term and give high return. PPF and EPF both are considered the safest savings instruments. EPF is only for salaried employees whereas PPF is for all.

On the other hand, VPF is also for salaried people. Both have a long lock-in period barring instances of emergency requirement of money.

2. Interest rate

PPF interest rate comes up for revision every quarter and EPF rate is revised annually. Currently the interest rate of PPF is 7.1% and EPF is 8.5%, which is the highest among all government savings instruments.

PPF account can be open at a post office or a bank. On the other hand, EPF account is generally open by an employer. No person can open an EPF personally.

3. Investment amount

In PPF, the minimum contribution in a fiscal year is Rs 500 and the maximum limit is Rs 1.5 lakh. One can deposit more than Rs 1.5 lakh, but no tax benefit, or interest benefit, would be applicable on the excess amount.

On the other hand, the contribution of EPF account is 12% of the basic salary. This is the contribution of the employee.

The employer also contributes the same amount. An employee can contribute more than his/her stipulated 12% of the basic salary. That amount would go to VPF, which carries the same facility as EPF.

4. Tenure

The default duration of a PPF account is 15 years. Then it can be extended for a block of five years indefinitely. Except for some emergency situation like Covid treatment or other critical illness, marriage or education needs of children, money cannot be withdrawn from PPF prematurely.

On the other hand, duration of EPF account is same as the duration of your employment. One has to withdraw the EPF corpus within three years of the end of his/her employment. During the pendency of one’s service, one cannot withdraw money from EPF.

5. Tax benefit

PPF is fully tax free. The contribution, interest and earning all are tax-deductible under Sec 80C of income tax act, 1961. The maturity amount of PPF is also tax-free.

On the other hand, EPF is also tax free under 80C of IT Act, but if money is withdrawn before the end of five years from the date of opening of the account, the amount withdrawn will become taxable.

If the EPF contribution along with the VPF becomes Rs 2.5 lakh per annum, then the EPF interest earned will be taxable.

6. Loan facility

Banks can sanction loan up to 90% of the total corpus in a PPF account. The only condition is that the PPF account has to be active and has run for a minimum of five years. If the account is between three and five years, one can get 25% of the deposit as loan.

7. Safe instrument

Both PPF and EPF are considered to be the safest investment instruments. The return is a bit low compared to mutual funds or equity markets, but certainly more than bank fixed deposit or any other instrument.

In EPF only 50% of the total investment is generally done by the employee; the other half is paid by the employer. Experts said, both are 100% safe and yield a guaranteed return after the tenure.

8. Liquidity

In case of PPF, you cannot withdraw money due to unemployment. PPF accounts have a term of 15 years. You can make partial withdrawals from PPF after the expiry of six years but you do not have to give any reason for the same.

You can withdraw 75% of your EPF corpus if you have been unemployed for a period of one month. If your unemployment extends to two months, you can withdraw the entire EPF corpus.

However, if you withdraw your EPF corpus within 5 years of account opening, the withdrawal will be taxable. The EPF retirement age is 58. Upon attaining this age, you can withdraw most of your corpus. However, a portion of the EPF corpus which is used for Employees’ Pension Scheme (EPS) will be paid to you as pension and the same will be taxable.

9. Transfer of account

A person has the option of transferring his/her PPF account from post office to banks and vice versa. Similarly, you can transfer your PPF account from one bank branch to another or to other banks as well.

On the other hand, if a person changes employer, he must transfer the EPF account. One should do that by linking that EPF account with the new UAN. It will help the employee to maintain continuity of the EPF account. Otherwise, the person will lose continuity.

Make sure that if you have multiple EPF accounts then all the accounts should be linked to the same UAN number otherwise you will not get all the benefits.