The government of India has introduced a handful of savings schemes to promote the practice of saving among the youth. Some of the popular savings schemes include the Employee Provident Fund (EPF) and Public Provident Fund (PPF). Both the schemes help the individual to save on Income Tax. The major benefit of investing in these plans is that you can start with a small amount of savings and end up earning a huge corpus of wealth when you retire. Before you plan to invest in either EPF or PPF, you must know the difference in these plans.

What is an EPF account?

EPF stands for Employee Provident Fund. It is a compulsory retirement benefits scheme that is designed only for salaried employees. As per EPFO rules, both employee and employer contribute a total of 24% of your basic salary to the EPF account. The amount saved in the EPF account can be withdrawn at the time of retirement or changing jobs. The EPF account can also be transferred from one organization to another while changing your job. The scheme is handled by the government organization namely, Employee Provident Fund Organization (EPFO). 

What is the PPF account?

A PPF account is an investment instrument in which every Indian resident individual such as employed, self-employed, unemployed, or even retired can contribute. The contribution made into this scheme is not mandatory, anyone can contribute any amount to the PPF subject to a minimum of Rs. 500 and a maximum of Rs. 1.5 lakh per year. You can get attractive returns on your investment that are exempt from tax.

Comparison between EPF and PPF

The following are the differences between both the schemes-

Rate of interest: The interest rate on EPF investment is higher as compared to the PPF accounts. For EPF, the rate of interest is 8.50 % while for PPF it is 7.10 % for a PPF account.

Maturity Period for EPF: An employee can hold an EPF account until permanent retirement. Moreover, an individual can withdraw from an EPF account only when they are unemployed for more than 2 months. On the other hand, contribution in a PPF account shall continue till the account matures. i.e. 15 years. An account holder can also choose to extend such period by a block of 5 years from thereon.

Withdrawal facility: You can withdraw the money anytime from your EPF account when you resign from the job. But the deposited amount in the PPF account cannot be withdrawn until maturity which is 15 years from the date of depositing the amount.

Loan facility: An individual can avail loans against PPF accounts whereas a person can withdraw money from an EPF account to meet his/her personal requirements.

Tax implications: Returns earned from a PPF account are tax-free while investments done in EPF qualifies for tax deduction under Section 80C of the Indian Income Tax Act, 1961.

Governing organization: EPF scheme is offered by the government organization known as Employee Provident Fund Organization i.e. EPFO. While the PPF scheme is offered by selected public banks and post office. 

EPF Vs PPF – Where to invest?

Both the schemes inculcate a habit of savings among individuals, they operate through different rules and regulations that one must be aware of before contributing to them. So, if you are planning to invest in any of the above savings schemes, make sure you check the points of differences between them as we have mentioned above. A comparison between these factors will help you to make a wise decision.