EPF vs. PPF vs. VPF

ppf_epf_vpf

Voluntary Provident Fund (VPF): As the name suggests, under the VPF scheme, an employee can voluntarily contribute any percentage of his salary to the PF account. However, a subscriber needs to note that the contribution must be more than 12 percent which is the PF cap. The interest offered would be the same as that of EPF and the amount would be credited to EPF account.

Employee Provident Fund (EPF): Under this scheme, both employees and employer contribute to the EPF account. It is compulsory for an employee as well as the employer to contribute 12 percent each to the EPF account. EPF is compulsory for every company in which 20 or more people are employed. Apart from this, an employee with a basic salary of over Rs 6,291 falls under this scheme.

Personal Provident Fund (PPF): It is a government-run fixed income security scheme, and oriented towards providing financial security after retirement to an unorganised sector or the self-employed person. However, it does not stop the salaried person to invest in the same. The interest earned on the PPF subscription is compounded. It means you not only earn interest in the money you put in, but you earn interest on the interest earned too, according to a Policybazaar report. All the balance that accumulates over time is exempt from wealth tax.

 

Difference between PPF and VPF

There are some differences exist between a PPF account and VPF account. Listed below are the key difference between both accounts:

  • A VPF account is only meant for salaried employees while a PPF account can be opened by self –employed and people working at unorganized sectors.
  • Interest offered on a VPF account is same with an EPF account which is 8.75%. On the other hand, a PPF account offers 8.7% on your savings.
  • Returns received from a PPF account are free from income tax. On the other hand contributions made towards a VPF account qualifies for tax deduction under Section 80C of the Indian Income Tax Act, 1961.
  • In case of a PPF account, the deposited amount cannot be withdrawn unless the account matures. The maturity period of a PPF account is 15 years. But when it comes to VPF accounts, employers can withdraw funds as and when they need to meet their financial requirements. However, if an employee withdraws funds from a VPF account before the account completes 5 years, the amount will taxed.
ParticularsEPFPPFVPF
Eligibility Only salaried
employees.
Anyone (i.e. both salaried or non-
salaried employee), except NRI
Only salaried
employees.
Investment Period Upto retirement or
resignation (whichever earlier).
15 years (can be further be extended
in block of 5 years).
Upto retirement or
resignation
(whichever earlier).
Tax Benefit Amount invested can be claimed as exemption under Section 80C of the Income Tax Act. Maturity amount is exempt from tax after continuous service of 5 or more
years.
Amount invested can be claimed as exemption under section 80C of the Income Tax Act. Maturity amount is exempt from tax.Amount invested can be claimed as exemption under Section 80C of the
Income Tax Act. Maturity amount is exempt from tax after continuous service of 5 or more years.
Withdrawal Facility Allowed Partial withdrawal allowed Allowed
Loan Against Investment Available 50% loan allowed after completion of 6 years. Available

The VPF yields the same interest rate as the EPF. Interest rates of all types of provident funds keep changing from time to time. While PPF rates are revised quarterly, VPF/EPF rates are revised annually. An analysis of interest rates of the VPF/EPF and the PPF shows the former has always been higher.
1. VPF provides a better return than PPF

■2017-18: The VPF/EPF interest rate was 8.55% while the PPF rate varied between 7.6% and 7.9%

■2016-17: The VPF/EPF interest rate was 8.65% while the PPF rate varied between 8% and 8.1%

■2015-16: The VPF/EPF interest rate was 8.8% while the PPF rate was 8.7%

■2014-15: The VPF/EPF interest rate was 8.75% while the PPF rate was 8.7%

■2013-14: The VPF/EPF interest rate was 8.75% while the PPF rate was 8.7%

The difference between the two has increased over the years in favour of the VPF/EPF, which makes it a better choice.

2. Investing in VPF is easy

For the PPF you will either have to walk into a post office once in a while or operate a PPF account online through a designated bank. The VPF is easier  as once you instruct your office accounts department you don’t have to do anything till it’s time you change your job. A fixed amount, decided by you, will be deducted from your salary every month. This ensures investment discipline while making savings easy.

3. VPF gives you the same tax benefits as PPF

Contribution towards the VPF is eligible for the  full tax deduction under Section 80C. Just like the PPF, it enjoys the highest EEE (exempt-exempt-exempt) category of tax deduction. So your investment in the VPF is tax free and so is the interest earned as well as the entire corpus at the time of withdrawal.

There is a small clause, however. VPF withdrawals are tax exempt only if one has been in service for more than 5 years.

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