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PF vs PPF: What's the difference?
May 02, 2006 09:16 IST Share this Ask Users Write a Comment Print this article

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young reader wrote in telling us he has just landed his first job and has begun investing. He had a very basic question: What is the difference between PPF and PF? We attempt to clear his doubts. 1. What is PPF and PF? EPF/ PF The Employee Provident Fund, or provident fund as it is normally referred to, is a retirement benefit scheme that is available to salaried employees. Under this scheme, a stipulated amount (currently 12%) is deducted from the employee's salary and contributed towards the fund. This amount is decided by the government. The employer also contributes an equal amount to the fund. However, an employee can contribute more than the stipulated amount if the scheme allows for it. So, let's say the employee decides 15% must be deducted towards the EPF. In this case, the employer is not obligated to pay any contribution over and above the amount as stipulated, which is 12%. PPF The Public Provident Fund has been established by the central government. You can voluntarily decide to open one. You need not be a salaried individual, you could be a consultant, a freelancer or even working on a contract basis. You can also open this account if you are not earning. Any individual can open a PPF account in any nationalised bank or its branches that handle PPF accounts. You can also open it at the head post office or certain select post offices. The minimum amount to be deposited in this account is Rs 500 per year. The maximum amount you can deposit every year is Rs 70,000. 2. What is the return on this investment? EPF: 8.5% per annum PPF: 8% per annum 3. How long is the money blocked? EPF The amount accumulated in the PF is paid at the time of retirement or resignation. Or, it can be transferred from one company to the other if one changes jobs. In case of the death of the employee, the accumulated balance is paid to the legal heir. PPF The accumulated sum is repayable after 15 years. The entire balance can be withdrawn on maturity, that is, after 15 years of the close of the financial year in which you opened the account. It can be extended for a period of five years after that. During these five years, you earn the rate of interest and can also make fresh deposits. Save tax and get rich 4. What is the tax impact? EPF The amount you invest is eligible for deduction under the Rs 1,00,000 limit of Section 80C.

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3/18/2012 8:32 PM

On maturity. The loan amount will be up to a maximum of 25% of the balance in your account at the end of the first financial year. the PF withdrawal is not taxed. you can take a loan on your PF.htm If you have worked continuously for a period of five years. File My Returns Share this Ask Users Write a Comment Print this article 2 of 3 3/18/2012 8:32 PM . What if you need the money? EPF If you urgently need the money.up to 60% of the balance you have at the end of the 15 year period -. you pay absolutely no tax. If you withdraw it before completion of five years. To find out the details. The best tax-saving funds The better option? In both cases. contributions get a deduction under Section 80C and the interest earned is tax free. 1998. it will be March allowed. the first loan can be taken during financial year 1999-2000 (the financial year is from April 1 to March 31). You can make withdrawals during any one year from the sixth year. For example. The tenure of employment with the new employer is included in computing the total of five years.rediff.PF vs PPF: What's the difference? . PPF The amount you invest is eligible for deduction under the Rs 1.000 limit of Section 80C. In the case of PF. 5. 1996. then too it is not taxed. preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower. But if your employment is terminated due to the employer also contributes to the fund. partial withdrawal -. FileMyReturns. If the account extended beyond 15 Get Ahead http://www. if the account is opened during the financial year 1997-98.Rediff. If you have not worked for at least five years. PPF You can take a loan on the PPF from the third year of opening your account to the sixth year. the amount you can withdraw is limited to 50% of the balance as on March 31.50%) than interest on PPF (8%). You are allowed to withdraw 50% of the balance at the end of the fourth year.00. So. but the PF has been transferred to the new employer. In this case. whichever is lower. if the account was opened in 1993-94 and the first withdrawal was made during 1999-2000. it is taxed. you will have to talk to your employer and then get in touch with the EPF office (your employer will help you out with this). Having said that. PF scores over PPF in two aspects. the withdrawal of PF is not taxed. You can also make a premature withdrawal on the condition that you are withdrawing the money for your daughter's wedding (not son or not even yours) or you are buying a home. or March 31. There is no such contribution in case of PPF. The rate of interest on PF is also marginally higher (currently 8.

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