Under the Employees Provident Fund (EPF) plan, an employee contributes a certain percentage of salary every month and the employer matches the contribution—this is deposited in an EPF account. Currently, the EPF rate is 12% of an employee’s salary.
The Public Provident Fund (PPF) plan, a Union government scheme, seeks to help individuals save for their retirement privately. A PPF account can be opened at post offices and at branches of public sector banks throughout the country but unlike an EPF plan, an individual’s contribution is voluntary, not mandatory. Both funds carry an interest rate of 8% per annum. The income-tax law stipulates an employee participating in an EPF plan shall be entitled to a deduction in accordance with Section 80C. Any amount contributed above 12% of an employee’s salary in the EPF account by an employer is taxable. In addition, interest in excess of 12% on the balance in EPF comes under the I-T net. Contributions towards PPF account also enjoy tax deduction benefits under Section 80c but are subject to a maximum limit of Rs70,000 annually. Interest earned on PPF and an EPF accounts is tax-free. Only one withdrawal is allowed a year from a PPF account after the sixth year. After six years, an employee can withdraw only 50% of the amount, but after 15 years, you can withdraw up to 60%. In a PPF account, you invest for 15 years, while in an EPF account, that window is as long as you are employed.