When it comes to building a secure retirement corpus in India, three of the most popular tax‑saving and retirement vehicles are:
- Public Provident Fund (PPF)
- Employees’ Provident Fund (EPF)
- Voluntary Provident Fund (VPF)
Each offers guaranteed returns, tax benefits, and disciplined savings—yet they differ in contribution rules, liquidity, and interest rates. This guide walks you through everything you need to know—side‑by‑side—so you can choose the right mix for your long‑term goals.
1. Overview of PPF, EPF & VPF
| Feature | PPF | EPF | VPF |
| Who Can Invest | Any Indian resident | Salaried employees in establishments covered by EPFO | Same as EPF — salaried employees (100% voluntary) |
| Minimum Contribution | ₹500 per financial year | 12% of basic + DA (employer & employee each) | Up to 100% of basic + DA (over and above mandatory 12%) |
| Maximum Contribution | ₹1.5 lakhs per year | No upper limit for salary—but employer contrib capped at statutory rate | No statutory cap—solely limited by your choice (up to 100%) |
| Interest Rate | 7.1% p.a., compounded annually | 8.25% p.a., calculated monthly and credited annually | Same as EPF (8.25% for FY 2024‑25) |
| Tax Treatment | EEE (Exempt‑Exempt‑Exempt) | EEE if completed 5 years of service | EEE if VPF maintained for 5 years; contributions under 80C |
| Lock‑in Period | 15 years | Till retirement or 2 months after leaving job | Same as EPF |
| Partial Withdrawals | From 7th year onward, up to 50% of balance | Allowed for specific reasons (marriage, illness, education) after 5 years | Same as EPF |
| Loan Facility | Available from 3rd to 6th year | Up to 75% of own share after 5 years of service | Same as EPF |
| Maturity | After 15 years, with option to extend | At retirement or after 2 months of leaving employment | Same as EPF |
| Nomination Facility | Yes | Yes | Yes |
2. Public Provident Fund (PPF)
2.1 What Is PPF?
Launched in 1968, the Public Provident Fund is a government‑backed savings scheme aimed at encouraging small‑savers to build a retirement corpus. It offers guaranteed returns and tax benefits under Section 80C of the Income Tax Act.
2.2 Key Features
- Interest Rate: 7.1% p.a., compounded annually .
- Lock‑in: 15 years, extendable in 5‑year blocks.
- Contributions: ₹500–₹1.5 lakhs per financial year, in one or multiple installments.
- Tax: Entire cycle is EEE—investments, interest, and maturity proceeds are fully tax‑exempt.
- Withdrawals: From the 7th financial year, you can withdraw up to 50% of the balance at the end of the (n – 1)th year.
- Loans: Available between the 3rd and 6th financial years at interest of 1% above PPF rate.
2.3 Pros & Cons
Pros:
- Guaranteed Returns: Completely risk‑free.
- Tax‑Free Growth: Entire corpus grows without any tax bite.
- Long Lock‑in: Forces disciplined saving.
Cons:
- Low Liquidity: 15‑year lock‑in feels rigid for mid‑term needs.
- Contribution Cap: Max ₹1.5 lakhs/year may limit high‑savers.
- Interest Rate Changes: Set quarterly by the government—subject to rate cuts.
3. Employees’ Provident Fund (EPF)
3.1 What Is EPF?
The Employees’ Provident Fund is a mandatory retirement scheme for salaried individuals working in organizations covered by the EPFO. Both employer and employee contribute 12% of basic + DA into the employee’s EPF account each month.
3.2 Key Features
- Interest Rate: 8.25% p.a. for FY 2024‑25, calculated monthly and credited annually .
- Contribution: 12% of basic salary + dearness allowance from both employer and employee.
- Tax:
- Employee Share & Interest: EEE if you complete 5 years of continuous service.
- Employer Share: Taxed as perquisite in the year contributed, but interest and maturity are tax‑exempt on meeting the 5‑year criterion.
- Employee Share & Interest: EEE if you complete 5 years of continuous service.
- Lock‑in: Until retirement or at least 2 months after leaving employment.
- Withdrawals: Permitted before retirement for specific purposes—housing, education, medical emergencies—subject to service conditions (usually 5 years).
- Loan Facility: You can take a loan against your own contribution—up to 75% of employee share after 5 years.
3.3 Pros & Cons
Pros:
- Higher Interest Rate: Typically beats most small‑savings rates.
- Employer Contribution: Doubles your savings rate.
- Loans & Partial Withdrawals: Flexible for life events.
Cons:
- Service Condition: 5 years of service required for full tax benefits and withdrawal.
- Limited Control: Employer manages the fund; you can’t choose investments.
- Tax on Employer Share: Creates a perquisite liability each year.
4. Voluntary Provident Fund (VPF)
4.1 What Is VPF?
The Voluntary Provident Fund is an extension of EPF, allowing employees to contribute more than 12% of their basic + DA to their provident fund account—up to 100% if they choose—while the employer’s contribution remains fixed at 12%.
4.2 Key Features
- Interest Rate: Identical to EPF (8.25% p.a. for FY 2024‑25) .
- Contribution: Employee alone decides additional percentage; no additional employer contribution.
- Tax: VPF contributions qualify for deduction under Section 80C (within ₹1.5 lakhs overall), and interest & maturity enjoy EEE status on meeting the 5‑year rule.
- Lock‑in & Withdrawals: Same rules and flexibility as EPF.
4.3 Pros & Cons
Pros:
- Guaranteed, High Returns: Beats most debt funds and small‑savings schemes.
- Full Tax Benefits: Both contribution and interest stay tax‑free after 5 years.
- Disciplined Saving: You decide the extra amount, locking in medium‑to‑long‑term savings.
Cons:
- Reduced Take‑Home Pay: Higher deductions from salary.
- Lower Liquidity: Same lock‑in as EPF can restrict access.
- No Employer Match: Employer sticks to statutory 12%.
5. Deep Dive: Side‑by‑Side Comparison
| Aspect | PPF | EPF | VPF |
| Control over Contributions | Full control (₹500–₹1.5 L) | Fixed 12% | Employee‑decided above 12% |
| Who Manages Funds | Government of India | EPFO | EPFO |
| Interest Crediting | Annually | Annually (monthly comp) | Annually (monthly comp) |
| Tax‑Free Maturity | Yes (EEE) | Yes after 5 years | Yes after 5 years |
| Nomination | Yes | Yes | Yes |
| Partial Withdrawals | From 7th Yr | After 5 Yr, specific | After 5 Yr, specific |
| Loan Facility | 3rd–6th Yr | After 5 Yr | After 5 Yr |
| Maturity Age | 15 Yr (extendable) | Retirement/2 months leave | Retirement/2 months leave |
| Best For | Risk‑averse, self‑employed | Salaried employees | High‑saver salaried employees |
6. Which One Should You Choose?
- You’re a Salaried Employee Seeking Retirement Savings:
- Core: EPF (mandatory employer & employee contributions)
- Boost: VPF to channel extra savings at the same attractive rate
- Core: EPF (mandatory employer & employee contributions)
- You’re Self‑Employed or Want Separate Long‑Term Savings:
- Choose PPF for a guaranteed, tax‑free corpus with flexible annual contributions up to ₹1.5 lakhs.
- Choose PPF for a guaranteed, tax‑free corpus with flexible annual contributions up to ₹1.5 lakhs.
- You Want Maximum Tax‑Free Growth & High Liquidity Flexibility:
- Combine PPF & VPF/EPF to balance strict lock‑in (PPF) with partial withdrawal options (VPF/EPF).
- Combine PPF & VPF/EPF to balance strict lock‑in (PPF) with partial withdrawal options (VPF/EPF).
7. Tax Implications & Benefits
- PPF: Entire cycle is tax‑free—investments, interest, and maturity proceeds (EEE).
- EPF:
- Employee Contribution & Interest: Exempt if 5 years of continuous service.
- Employer Contribution: Taxed as perquisite when credited, but interest & maturity remain exempt on service condition.
- Employee Contribution & Interest: Exempt if 5 years of continuous service.
- VPF:
- Contributions qualify under Section 80C (up to ₹1.5 lakhs total).
- Interest & maturity are tax‑free after 5 years.
- Contributions qualify under Section 80C (up to ₹1.5 lakhs total).
8. Liquidity & Withdrawal Rules
| Plan | Withdrawal Timing & Purpose | Loan Facility |
| PPF | From 7th year, up to 50% of (n–1) year’s balance; special cases beyond | Loan at 1% above PPF rate, only 3rd–6th year |
| EPF | After 5 years of service for housing, medical, education, marriage, etc. | Up to 75% of employee share after 5 years |
| VPF | Same as EPF | Same as EPF |
Partial withdrawals help meet life’s big expenses while keeping the remainder compounding at attractive rates.
9. Nomination & Estate Considerations
All three allow naming nominees, ensuring a hassle‑free transfer of funds upon demise. PPF account holders must update nomination details periodically, while EPF/VPF nominations can be managed via Form 2 on the EPFO portal.
10. How to Open & Operate
- PPF:
- Open at any bank or post office with identity/address proof.
- Deposit via cheque, online banking, or cash.
- Open at any bank or post office with identity/address proof.
- EPF/VPF:
- Automatically deducted from salary by your employer.
- To opt for VPF, submit Form 2A (or employer’s prescribed form) specifying your additional contribution percentage.
- Automatically deducted from salary by your employer.
11. Monitoring & Managing Your Accounts
- PPF: Check balances on bank/post‑office portal or annually via passbook.
- EPF/VPF: Use the EPFO Unified Portal or UMANG app to view contributions, interest, and nominate or update UAN details.
Automate reminders for your annual PPF deposit to ensure you claim full tax benefits by March 31 each year.
12. Conclusion
Choosing between PPF vs. VPF vs. EPF isn’t an either/or decision—each serves a unique purpose:
- PPF anchors disciplined, tax‑free, long‑term savings for self‑employed and high‑tax bracket investors.
- EPF lays the foundation of retirement savings for salaried employees, with employer contributions doubling your savings power.
- VPF turbocharges that base EPF contribution, letting you commit more of your salary at the same attractive rate.
By understanding their side‑by‑side features—interest rates, lock‑in, tax treatment, and withdrawal rules—you can craft a customized savings strategy that aligns with your career stage, liquidity needs, and retirement goals. Start today, and let the power of compound interest work for you!
Source : thepumumedia.com