EPF vs PPF vs VPF: Which is the Difference?
Retirement planning is a crucial step for securing your financial future, and government-backed schemes like the Employee Provident Fund (EPF), Voluntary Provident Fund (VPF), and Public Provident Fund (PPF) offer reliable, low-risk options. Each scheme operates differently, with varying interest rates, taxation rules, and withdrawal guidelines. EPF and VPF can be suited for salaried individuals, while PPF can be a good choice for self-employed investors. In this article, we will explore the key differences between EPF vs PPF vs VPF to help you decide which scheme best fits your needs. Understanding these differences can be essential to aligning your investment with your financial goals and circumstances.
EPF vs PPF vs VPF: The Basics
What is EPF?
EPF, or Employee Provident Fund, is a retirement savings scheme for employees in India. It is a portion of your salary that you and your employer contribute every month. The money you put into an EPF is meant to grow over time and provide financial security for your retirement. EPF offers tax benefits and the accumulated amount can be withdrawn when you retire or meet certain conditions.
What is VPF?
VPF (Voluntary Provident Fund) is an additional saving option for salaried individuals in India. It allows employees to contribute more than the mandatory 12% of their basic salary towards their provident fund. The interest on VPF is the same as that on EPF, which is currently 8.25%.
What is PPF?
PPF, or Public Provident Fund, is a government-backed savings scheme in India open for all individuals for any sector of the economy, unlike VPF. Any citizen living in India can open a PPF account be it a student, self-employed individual, salaried employee, retired, etc.
EPF vs VPF vs PPF – What’s the Difference?
| Parameters | EPF (Employee Provident Fund) | VPF (Voluntary Provident Fund) | PPF (Public Provident Fund) |
| Type | Employer-sponsored | Government-backed | Voluntary |
| Purpose | Retirement savings | Retirement savings | Additional savings |
| Contributions | Employee and employer | Individual | Employee |
| Interest Rate | 8.25% | 8.25% per annum | 7.1% |
| Maximum Contribution | 12% of the basic salary + DA | Rs. 1.5 lakh per year | Additional voluntary amount |
| Withdrawal | Upon retirement/employment termination | After 15 years | Can be withdrawn anytime |
| Tax Benefits | Tax-free growth and contributions | Tax-free growth and contributions | Tax-free growth and contributions |
| Flexibility | Limited flexibility | Maximum flexibility | Maximum flexibility |
| Risk Profile | Safe and backed by the government | Safe and backed by the government | Safe and backed by the government |
Eligibility Criteria for EPF vs PPF vs VPF
The eligibility criteria for the following PPF vs EPF vs VPF are as follows:
PPF (Public Provident Fund)
- Individual Eligibility: Any resident individual, including salaried employees, self-employed individuals, and even minors with a guardian, can open a PPF account.
- Age Limit: There is no specific age limit for eligibility.
- Citizenship: Only Indian citizens are eligible to open a PPF account.
EPF (Employee Provident Fund)
- Eligible Employees: All employees working in establishments with 20 or more employees are eligible for EPF investments. However, in some cases, establishments with fewer than 20 employees may also be covered under certain conditions.
- Salary Criteria: Employees with a basic salary of up to Rs. 15,000 per month must contribute to EPF. Earnings above this threshold are optional for employees.
- Age Limit: There is no specific age limit for eligibility. However, employees who are already 58 and above cannot apply for the pension fund.
VPF (Voluntary Provident Fund)
- Eligible Employees: VPF is an extension of EPF, so the eligibility criteria for EPF apply. Employees who are eligible for EPF can choose to contribute voluntarily to VPF.
- Salary Criteria: VPF contributions are voluntary, but they are subject to the same salary criteria as EPF, where employees with a basic salary of up to Rs. 15,000 per month must contribute to EPF.
- Age Limit: There is no specific age limit for eligibility.
Investment Period
The investment period for every scheme is quite different. Let’s have a look.
- Withdrawal Facility: In the case of EPF investment accounts, employees can take partial withdrawals for specific purposes like education, housing, marriage, etc. For complete withdrawal, the entire PPF amount can be withdrawn upon maturity, which is after 15 years from the end of the financial year of account opening. However, in the case of a PPF account, it is to be maintained for 15 years and can be withdrawn in partial amounts subject to certain conditions. The account can be extended for another five years. VPF does not have a separate withdrawal facility since it is a part of EPF. The withdrawal rules for EPF apply to the VPF amount as well.
- Loan Facility: Unlike PPF loans, one can withdraw their entire investment after the onset of the 6th year for VPF and EPF loans, while only 50% of the available balance at the end of the 4th year is withdrawable in PPF loans. In other words, the full amount cannot be withdrawn.
Maturity Period
Here are the different maturity periods of EPF vs PPF vs VPF:
- EPF (Employee Provident Fund): The EPF maturity period is typically 15 years from the date of opening the account. EPF lock-in period is 5 years. Thus, the accumulated funds, including the principal and interest, can be withdrawn upon retirement, resignation, or after two months of unemployment.
- PPF (Public Provident Fund): The maturity period for PPF is 15 years from the end of the financial year in which the account was opened. Moreover, a PPF subscriber can extend their 15-year lock-in period.
- VPF (Voluntary Provident Fund): VPF does not have a separate maturity period. VPF lock-in period is the same as EPF lock-in period. It is an extension of the EPF and follows the same maturity period of 15 years. Individuals can choose to transfer their EPF account when they change employers.
Tax Implications after Union Budget 2024-25
Let’s discuss the tax implications of each:
EPF (Employee Provident Fund)
In the 2024 Budget, Finance Minister Nirmala Sitharaman proposed an increase in the standard deduction limit from Rs. 50,000 to Rs. 75,000. The deduction on family pensions for pensioners is also set to rise from Rs. 15,000 to Rs. 25,000.
New Tax Regime Changes:
- Up to Rs. 3 lakh: Nil
- Rs. 3 lakh – Rs. 7 lakh: 5%
- Rs. 7 lakh – Rs.10 lakh: 10%
- Rs. 10 lakh – Rs. 12 lakh: 15%
- Rs. 12 lakh – Rs. 15 lakh: 20%
- Above Rs. 15 lakh: 30%
Under this new regime, salaried individuals can save up to Rs. 17,500 in income tax.
Features of EPF after the Union Budget 2024-25
- Employees must contribute 12% of their basic salary or dearness allowance (DA), whichever is lower, with most companies deducting 12% of salary plus DA.
- Employers match the employee’s contribution up to a maximum wage ceiling of Rs. 15,000 per month, equating to a minimum contribution of Rs. 1,800 per month.
- Employees can contribute more through the Voluntary Provident Fund (VPF), but employers are not required to match contributions above 12%.
- EPF interest rates, set by the government annually, are 8.25% p.a. for FY 2024-25. Interest is credited at the end of each financial year.
- Organisations with fewer than 20 employees are required to make a reduced EPF contribution of 10%.
- Upon retirement, employees receive a lump-sum amount that includes both employee and employer contributions with accrued interest.
This updated structure aims to provide increased financial relief and benefits for taxpayers and EPF contributors, making it essential for new investors to understand these changes.
PPF (Public Provident Fund)
The Public Provident Fund (PPF) is an investment scheme under the Exempt-Exempt-Exempt (EEE) category, meaning all deposits, interest earned, and the maturity amount are tax-free. Contributions made to a PPF account are deductible under Section 80C of the Income Tax Act, with a maximum limit of Rs. 1.5 lakh per financial year. The current bank PPF account interest rate is 7.1%.
Additionally, the accumulated amount, including interest, is exempt from tax upon withdrawal. A PPF account cannot be closed before maturity except in the event of the account holder’s demise, in which case the nominee can apply for closure. Accounts can be transferred between designations, but early closure is not allowed under normal circumstances.
VPF (Voluntary Provident Fund)
VPF, similar to EPF, belongs to the EEE or Exempt-Exempt-Exempt category. The VPF maximum limit is the same as EPF. The VPF rate of interest is the same as the EPF interest rates. The tax implications of VPF are similar to EPF since VPF contributions are part of the EPF. VPF contributions are eligible for a VPF tax deduction under Section 80C, subject to the overall limit of Rs. 1.5 lakh per year.
What Factors You Must Consider Before Choosing EPF vs PPF vs VPF?
When deciding between EPF, PPF, and VPF, there are several factors to consider. Here are some important factors to help you make an informed decision:
Employment Status
EPF is available to salaried individuals through their employers, while PPF is open to both salaried and self-employed individuals. A Voluntary PF or a VPF is an extension of EPF and is only available to salaried individuals. You can consider your employment status and eligibility for each option.
Contribution Limits
EPF has a mandatory contribution limit of 12% of the employee’s basic salary plus dearness allowance. PPF allows contributions up to a maximum limit of Rs. 1.5 lakh per year. VPF enables employees to contribute more than the mandatory 12% limit in EPF but within overall Section 80C limits.
Employer Match
EPF involves both employee and employer contributions, with the employer matching the employee’s 12% contribution. This can be advantageous as it increases your retirement savings. You can consider the employer match aspect while evaluating EPF.
Withdrawal Rules
EPF has specific withdrawal rules, with tax implications based on the withdrawal period. PPF has a lock-in period of 15 years and premature withdrawals. You can evaluate the withdrawal rules of each scheme and consider your long-term investment goals.
Flexibility
EPF and VPF contributions are made through salary deductions, providing automatic savings. PPF contributions can be made at your convenience, allowing more flexibility. You can consider the level of flexibility you prefer in managing your contributions.
Interest Rates
VPF vs EPF vs PPF interest rates are subject to periodic revisions. It can be helpful to stay updated on the prevailing interest rates for each scheme and assess the potential growth of your investments.
Risk Profile
EPF and PPF are considered relatively safe investment options backed by the government. VPF, being an extension of EPF, carries similar risk characteristics. It can be helpful to assess your risk tolerance and investment preferences.
Long-Term Financial Goals
Consider your long-term financial goals, such as retirement planning or other specific objectives. Evaluate how EPF, PPF, or VPF align with your goals and help you achieve them.
Tax Implications
EPF, PPF, and VPF offer tax benefits, but the rules and tax treatment may differ. You can understand the tax implications, including deductions for contributions and tax treatment of withdrawals, to assess the overall tax efficiency of each scheme.
What are the Benefits of Investing in EPF vs PPF vs VPF?
Investing in retirement schemes like EPF (Employee Provident Fund), PPF (Public Provident Fund), and VPF (Voluntary Provident Fund) offers several general benefits. Here are some key advantages of investing in these schemes:
Tax Benefits
EPF, PPF, and VPF provide tax benefits, making them attractive investment options. Contributions made to these schemes are eligible for a tax deduction under Section 80C of the Income Tax Act, up to a maximum limit of Rs. 1.5 lakh per year.
Long-Term Savings
These schemes promote long-term savings, encouraging individuals to build a substantial corpus for retirement. By contributing regularly over a period, investors can accumulate a significant amount of funds to meet their post-retirement financial needs.
Secure and Government-Backed
EPF, PPF, and VPF are secure investment options as they are backed by the government. These schemes provide a reliable and stable platform for individuals to invest their savings, minimising the risk associated with market volatility.
Compounding Benefits
EPF, PPF, and VPF offer the advantage of compounding returns. The interest earned on the contributions is reinvested, leading to exponential growth over time. The longer the investment period, the greater the compounding benefits.
Retirement Planning
Investing in these schemes helps individuals plan for their retirement. By consistently contributing to EPF, PPF, or VPF, individuals can build a retirement corpus that provides financial security and stability during their post-employment years.
Employee-Employer Contributions (EPF)
EPF involves both employee and employer contributions. The employer matches the employee’s 12% contribution, thereby boosting the overall retirement savings. This employer match serves as an additional benefit and increases the accumulation of funds over time.
Flexibility (PPF and VPF)
PPF and VPF provide flexibility in terms of contribution amounts and timing. While PPF has a fixed annual contribution limit of ₹1.5 lakh, VPF allows employees to contribute more than the mandatory 12% of their basic salary.
How to Choose Between EPF, PPF and VPF?
Here is an example of all three schemes to demonstrate how returns work in each of them. Calculating the exact amount of money you could save by investing in each scheme would depend on various factors. However, to provide a general example, let’s assume a monthly salary of Rs. 50,000 and a contribution percentage of 12% for EPF and VPF. Here’s an example of potential savings over a 10-year period:
Assumptions
- EPF contribution: 12% of basic salary + DA (Rs. 40,000)
- VPF contribution: Additional 5% of basic salary + DA (Rs. 2,000)
- PPF contribution: Rs. 5,000 per month
Calculation
The calculations are as follows:
- EPF (Employee Provident Fund):
EPF contribution per month: Rs. 40,000 x 12% = Rs. 4,800
Annual EPF contribution: Rs. 4,800 x 12 = Rs. 57,600
- VPF (Voluntary Provident Fund):
VPF contribution per month: Rs. 2,000
Annual VPF contribution: Rs. 2,000 x 12 = Rs. 24,000
- PPF (Public Provident Fund):
PPF contribution per month: Rs. 5,000
Annual PPF contribution: Rs. 5,000 x 12 = Rs. 60,000
Over a period of, let’s say, 10 years, the total savings would be:
- EPF:
Total EPF contribution over 10 years: Rs. 57,600 x 10 = Rs. 5,76,000
- VPF:
Total VPF contribution over 10 years: Rs. 24,000 x 10 = Rs. 2,40,000
- PPF:
Total PPF contribution over 10 years: Rs. 60,000 x 10 = Rs. 6,00,000
Summarisation
| Provident Fund Type | Monthly Contribution | Annual Contribution | Total Contribution over 10 Years |
| EPF (Employee Provident Fund) | ₹4,800 | ₹57,600 | ₹5,76,000 |
| VPF (Voluntary Provident Fund) | ₹2,000 | ₹24,000 | ₹2,40,000 |
| PPF (Public Provident Fund) | ₹5,000 | ₹60,000 | ₹6,00,000 |
Ultimately, the best savings option for you will depend on your individual circumstances and goals. However, if you are looking for a secure and tax-efficient way to save for retirement, you can start with investing in EPF and then look out for the other two schemes, as it could be a good option for you.
To Wrap It Up…
In conclusion, EPF, VPF, and PPF each offer distinct advantages and limitations, making them suitable for different types of investors. From the comparison, it’s evident that EPF and VPF generally outperform PPF in terms of return on investment, employer contribution, and liquidity. However, as EPF and VPF are not available to self-employed individuals and those in the unorganised sector, PPF stands out as a more accessible option. Understanding the unique features of each scheme can help you align your choice with your retirement goals. For salaried employees, investing in EPF is mandatory for most employed individuals, but expanding your retirement savings with VPF or PPF can provide added benefits. Investors should conduct sufficient research on all these schemes to choose wisely.
Frequently Asked Questions About EPF vs PPF vs VPF
Salaried employees can use VPF accounts, while self-employed and unorganised sector individuals can open PPF accounts. VPF and EPF offer 8.25% interest, while PPF offers 7.1%.
Only salaried employees with an existing EPF account and monthly salary payments are eligible to open a VPF account because the VPF scheme extends from the EPF.
VPF accounts cater exclusively to salaried employees, whereas PPF accounts are open to self-employed individuals and those in unorganised sectors. Thus, even self-employed individuals can invest in PPFs.
Yes, it is possible to invest in both PPF and VPF.
The Employee Provident Fund (EPF) and Public Provident Fund (PPF) are government-backed savings schemes that differ in contribution, interest rates, and withdrawal rules. EPF contributions are directly deducted from an employee’s salary and are mandatory, while PPF contributions are voluntary, with a minimum of Rs. 500 and a maximum of Rs. 1.5 lakh per year. As of July 2024, EPF’s interest rate was 8.25%, while PPF offered 7.1%.
Nes, PF and EPF refer to the same scheme. PF, or Provident Fund, is commonly known as EPF (Employees’ Provident Fund). It is a government savings scheme for employees in the organised sector, managed by the Employees’ Provident Fund Organisation (EPFO) under the Employees’ Provident Fund Act of 1956.
