Saturday, 17 March 2012

EPF vs PPF- Lets Compare..

David Castillo Dominici's
EPF and PPF are like twins…. Ram/Balram or Seetha/Geetha, Meaning even though they almost look alike but they are different entities.  Let us look into the commonalities and the differences.
EPF- Employee Provident Fund - As the Name suggests Employee Provident Fund is only for Salaried Employees.
PPF- Public Provident Fund – This is open for common public, irrespective of salaried or Business man.
Both PPF and EPF are eligible for tax exemption under 80-C.   PPF and EPF both are considered as safe means of building retirement corpus. In case of PPF investment can be minimum of 500 rupees per year, where as in case of EPF it is 24% of your Basic Salary (12% employer’s contribution & 12 %is employee’s contribution).
Now that we know a bit of basics, let us get into some Question and Answers Mode.
Question - EPF:  Can I increase investment in EPF, i.e. more than 24% of Basic Salary?
Answer – EPF:  24% of Basic is inclusive of (12% of employee and 12% Employer) contribution. The employer will only contribute 12%, however Employee can increase his contribution. 
Question-EPF: Is Entire 24% invested in PF account?
Answer-EPF: Employees Contribution of 12% goes directly to PF account. Employer’s contribution of 12% is invested into Pension Fund and PF accounts (8.33% invested toward Pension Fund & 3.67% towards PF).
Question-EPF:  If 8.33% is invested towards Pension Funds, Does this mean one would get Pension?
Answer-EPF: Yes Employee would get Pension (as per Family Pension Scheme) after attaining retirement age.
Question-EPF:  How many years of service entitles for Pension?
Answer-EPF: Minimum of 10 years of service, you will be eligible for Pension. He will receive pension on reaching 58 years.
Question-EPF: Can one get Pension earlier?
Answer-EPF: You can get pension once you reach 50 years, however for every year short to 58, you will get 3% less pension. Example at 50, you will get pension lesser by 24% (8 year*3%).
Question – EPF: What about the Maturity Period for EPF?
Answer-EPF: Retirement or Resignation, whichever is early. The only catch here is, if you hop jobs in less than 5 years and withdraw the money, you will have to pay tax. You won’t be taxed if you transfer EPF to new employer. 

Question-EPF: Who would get the money if employee is no more?
Answer-EPF: In-case of death of employee, the amount is paid to legal heir.
Question-EPF: Is premature withdrawal or Loan Possible?
Answer–EPF: Yes only in special cases, either to build your home or for your daughter’s marriage.
How about jumping into some quick comparison instead of boring question and answer session?
Here you Go….


Interest Rate
Employer Contribution
Tax Exemption
Tax-on Withdrawal
If withdrawn before 5 years
Minimum Investment
24% of Basic Salary
500 Rs
Yes- Only in special Cases.
Yes- From 3rd Year to 6th Year
Who can Invest
Only Salaried Employee
Anybody can invest in PPF
Lock-in Period
Retirement or Resignation
15 Years, Extendable in 5 years block

Final Take Away:
·    Both EPF and PPF have exemption under 80-C. Return are tax free in both cases unless you don’t withdraw EPF money in less than 5 years.
·    Employer Contribution of 12% towards EPF which is not the case in PPF
·    For Details of PPF read All About PPF
Have any question? Leave a comment and i would try my best to provide the information.


Anonymous said...

here is a detailed info on EPF.

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