The rate of return is 8.5 per cent yearly for EPF account and 7.1 per cent per annum for PPFEmployee Provident Fund (EPF) and Public Provident Fund (PPF) are two long-term investment instruments that assist in saving on income tax.
The charm of these instruments depends on their slow, consistent and secure nature.
It is really essential for working individuals to make the most of these options, as small financial investments over a time period lead to a huge corpus by retirement time.
Individuals typically get confused between the two and might require assistance in choosing plainly which of these is suited finest for them.
Let's take a closer aim to understand the potential advantages of the two options.What is PPF?A statutory plan by the main government, it was presented in India in 1968 with a goal to mobilise little cost savings and provide old-age income security to self-employed individuals from unorganised sectors.
It uses an attractive interest rate and returns on the quantity invested.What is EPF?It is a retirement advantage scheme for employed staff members.
In it, both the staff member and the company contribute 12 per cent of the standard wage each month to the Worker Provident Fund Organisation (EPFO).
This percentage is pre-set by the government.
And the withdrawal of EPF quantity after five years of continuous service is exempt from tax.
People can also transfer their EPF account from one business to another when they switch jobs.What are the factors that identify PPF from EPF?Return on investmentThe present rate of return for an EPF account is 8.5 percent each year, while it is 7.1 percent per year for PPF.Investment tenurePPF includes a lock-in period of 15 years, implying the quantity deposited can be withdrawn on maturity after 15 years.
If an investor wants to continue with the scheme without withdrawing the cash simply then, he/she can extend the period in batches of five years for an endless number of times.The quantity transferred in an EPF account can be withdrawn at the time of retirement or if the person has resigned from the job and wishes to use the money.Loan optionBoth the instruments enable financiers to avail the loan center, with conditions.
EPF account holders can get loans for personal requirements against their deposits by sending required files and meeting other requirements defined by the EPFO.
For PPF, a loan facility is offered from the third to the 6th monetary year.Tax implicationsPPF comes under the Exempt-Exempt-Exempt (EEE) classification, suggesting the principal and maturity amount, in addition to the interest quantity, is tax-free under PPF.According to brand-new tax rules, if deposits to EPF and Voluntary Provident Fund (VPF) by a staff member surpass Rs 2.5 lakh in a financial year, then the interest made on the quantity exceeding Rs 2.5 lakh will be taxed for the employee.Depending on the above factors, EPF appears to be somewhat more beneficial to a factor because of the following reasons: EPF has contributions from the employer however they are not available in the PPF scheme.An EPF holder can withdraw money for individual requirements after a much shorter time limit, while an individual can not do so in PPF up until the conclusion of the 15-year lock-in period.