EPF Vs VPF Vs PPF – Which is better?

EPF Vs VPF Vs PPF – Which is better optionEPF Vs VPF Vs PPF – Which is better?

Provident fund schemes provide high security with stable returns and would be useful during your retirement times. There are Employee Provident Fund (EPF), Voluntary provident fund (VPF) and Public Provident Fund (PPF) schemes where individuals can save money for retirement. However their unique features would help individuals to take decision as to where to invest. In this article we would discuss about EPF Vs VPF Vs PPF, their features and which is a better option.

What is Employee Provident Fund (EPF)

EPF is for salaried employees where employer and employee would contribute to 12% of basic + DA each into this provident fund account. This would generate interest of 8%+ per annum till the retirement age.

What is Voluntary Provident Fund (VPF)

As the name indicates, this is a voluntary provident fund contribution from employee to his provident fund account. This is beyond employee EPF contribution of 12%. However there is no bound from employer to contribute to this VPF. The maximum amount an employee can contribute is 100% of Basic and DA. This would carry same rate of interest of EPF. The amount would be credited to EPF acount and there is no seperate account for VPF.

What is Public Provident Fund (PPF)

PPF is a government scheme meant for un-organized sector / non-salaried employees. Anyone can contribute to PPF account and get safe and assured returns. PPF currently have higher rate of interest comparing to EPF interest rates.

EPF Vs VPF Vs PPF – Features

Now, let us see the difference among these 3 provident fund schemes.

1) Who can open the account (EPF Vs VPF Vs PPF)

  • EPF and VPF can be opened only by salaried employees in India.
  • On the other side, PPF can be opened by any Indian. NRI’s cannot open PPF account.

2) Interest rates (EPF, VPF and PPF):

  • EPF and VPF carry same rate of interest. For FY2012-13, EPF/VPF interest rate was 8.5% per annum.
  • On the other hand, PPF interest rate for FY2012-13 was 8.8% per annum. PPF has higher weight age in terms of interest rate.
  • However interest rates on provident fund schemes would be decided by Govt. of India every year.

3) Tax Benefit (EPF Vs VPF Vs PPF):

The amount invested in these 3 provident fund schemes are exempted from tax under section 80C up to ₹ 1 lakh.

4) Period of investment (EPF or VPF or PPF):

  • EPF/VPF account would be active till retirement or when an individual resigns from the organization whichever is earlier. Transfer from one company to another company can be done for EPF/VPF.
  • On the other side, PPF account is opened for 15 years period. You can extend this account for another 5 years upon maturity.

5) Loan option (EPF Vs VPF Vs PPF):

  • For EPF/VPF, you can apply for loan and withdraw your investment to maximum extent. It is somewhat liquid investment option.
  • PPF on other hand, you can withdraw only 50% of the balance available at the end of 4th year upon 6th year onwards. Means you cannot withdraw full or maximum extent.

6) Employer contribution (EPF Vs VPF Vs PPF):

For EPF, employer has an obligation to contribute 12% of basic + DA. Means this would straight away add to your retirement savings. For VPF or PPF there is no such employer obligation to contribute.

7) Mandatory savings from employee (EPF Vs VPF Vs PPF):

For EPF, employee has to do 12% contribution on basic and DA per month. However for VPF or PPF there are no such mandatory savings.

8) Taxation of maturity returns (EPF / VPF / PPF):

  • Maturity returns from EPF/VPF are tax free provided if an employee is in continuous service for 5+ years. If the employee has quit before 5 years and needs maturity amount, it would attract tax.
  • On the other hand, PPF returns are tax free.

Below is the comparison table of all these features.

EPF Vs VPF Vs PPF – Which is better-comparison chart

Conclusion: If you are salaried employee, you anyway have to contribute to EPF as this is mandatory provident fund scheme. However if you also look for secure returns for retirement savings along with liquidity, you can contribute for Voluntary Provident Fund (VPF) also. Considering limitations for PPF, VPF would score higher. 

If you are non-salaried employee, as an alternative, you can invest in Public Provident Fund (PPF).

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Suresh
EPF Vs VPF Vs PPF – Which is better

Suresh KP

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77 comments

  1. SIR,
    IF WE COMPARE PPF VS EPF VS NPS VS LIC
    WHICH WOULD BE TOPPER AND WHY?
    I AM MARRIED .I HAVE FAMILY WITH ONE KID AND WANT GURENTED TAXFREE RETIREMENT WITH PROTECTION OF PRESENSE TOO..
    PLEASE SUGGEST

    1. Every option has its own pros and cons. PPF/EPF comes with fixed rate of interest though Govt announces them every year. It is hovering between 8% to 8.45%. NPS is like mutual fund and returns may vary between 7% to 12% depending on fund and risk factors. LIC comes with low returns (4% to 6%) but provides life insurance coverage. If you are low risk investor, consider taking a term plan and balance savings invest in PPF/EPF/NPS. If you can take some risk, invest part of your savings in mutual funds through SIP

  2. I am working in a Private Limited company and I have an EPF account from the year of 2010. Presently I am paying Rs.1800/- for my EPF and my company also paying the same Rs.1800 as its contribution of 12%.
    Now I want to increase my contribution amount of Rs.5000/- apart from existing amount of Rs.1800/- from my salary. So please clarify me the following points.
    1.How I can increase my contribution without of disturbing my existing benefits?
    2.If I switch over from EPF to VPF means, whether it will suffer any of my future benefits from Government and also the existing benefits from my company?
    3.If My account should be shifted to VPF, then what is the procedure to be followed by company?

    1. I am not a Financial Expert, but as I understand
      1. VPF is an additional contribution towards the Employee’s EPF account . As the name suggests the employee can contribute upto 88% of his Basic+DA towards the VPF so that the maximum limit of contribution is capped at 100% of Basic+DA
      2. You can start contributing an additional Rs 5000 as VPF in addition to your existing deduction of Rs 1800(12% of your Basic+DA)
      3. Since the amount contributed towards VPF is also deposited in the EPF account, so there is no question of any Switch or Shift from EPF to VPF.
      4. Your employer however will continue to contribute Rs 1800 toward your EPF account
      5. VPF contribution or lack of it will not affect any benefits neither from your employer nor from Govt
      6. Both your EPF and VPF contribution will add to your Tax savings under Sec 80C upto maximum limit of Rs 150,000
      Hope this satisfies your querry

  3. Suppose I have some contribution made in VPF and after 5+ years I resign.. then can I withdraw that VPF amount along with my EPF..

      1. Do we need to fill any different form for Income tax rebate under PPF or is it understood that within limits of 1.5L, it would be auto exempted? 

  4. I read somewhere that minimum period for vpf is 5 years. What happens if I resign or go outside country – will the account be terminated and what would be the tax treatment?

  5. What if I resign or go abraod before 5 years, do I need to terminate and pay tax on accrued interest?

    How much is the tax liability – will it be added to the taxable income and taxed accordingly OR some flat rate of 10%, 20%, etc.?

    What are the options to avoid this taxation in case we need to resign before 5 yrs? Can we keep the account open till completion of 5 years and then terminate? If yes, what happens to taxation and interest rate?

    Thanks

  6. Hi Suresh, – This article is really helpful, can you please tell me how to view the VPF amount? Will it be shown in EPF account itself?

    1. It's so simple just dial toll free no. 01122901406 and give a missed call from your registered mobile number in your account. And get your epf balance via sms with in minutes..

  7. i just want to get some clarification wheather a person having EPF account can open PPF account??

    Regards,

    Pavan kumar

  8. Hi,
    I have opted for VPF in my company, and the amount is getting deducted in salary slip, but in the EPF passbook this amount is not getting reflected in employee share, please let me know is there anyother way i can see this or is it a mistake done by my company. Thanks in advance.

  9. Can I withdraw VPF once I quit the company. I wanted this information as I m making VPF from past 6 months and I am worried if I am not getting VPF.
    Please let me know how the VPF withdrawal process work and what is the time frame to get the VPF money once you apply. Please help me with the detailed information.

  10. I am working in a company group. After 3.6 years of my service in one of the company of the group, the employer changed my name in to other company name of the same group. Now the EPF contribution Is going to new company name in last 6 months. Hope the e.6 years of EPF contribution is taxable if I withdraw on completion of 5 years term
    Secondly the new company started Group VFS for 12 persons, can I transfer my old company investment into to this new VPF.

    Regards
    Ramesh

  11. hi Suresh, Thanks for the article . it really helps me

    query.. For VPF/EPF, if I withdraw the pf in 5 yrs then it is taxable or if i quit the company then it taxable?

  12. Hi Sir,

    I have been working in a Limited Company from past 4.5 Years and now I would like to invest some money in VPF. My only query is that in any case I leave my current company prior to completing 5 years of my services then would my VPF value become taxable??…if yes then what would be the right way to saving it.

    Regards,

    Rajkumar Sukhpal

  13. Hi Suresh
    Thank you for the article. Can you please tell me clearly, if I leave my job today, which is over 6 years and having EPF (over 5 years) and started VPF for last 2 years:
    1. Do I have to pay any tax on the maturity of EPF/VPF?
    2. If yes, then taxation will be only on the VPF part or EPF+VPF part?
    Thank you

  14. Suresh,

    Great Job! I understand that we need toi be in service for continuous 5 years to get the tax benefit on the returns. I have been working for the same company for last 6 years and this year I have contributed 50k in VPF. So if I withdraw that amount next year, is it taxable? Does my period of employment count from the time i invested in VPF or the time I have been working in the same firm.

    Thanks in advance.

  15. Hi I am a salaried employee , I already have ana EPF aacount with my current organizations. Please suggest some good investment schemes for tax exemption ( including VPF and PPF). I also have  an EPF a/c with my previous organization its been 5 months since i left rom there ,haven't applied for EPF withdrawl or transfer. hope i'll be able to get it whenever i need.

  16. Hi,

    My EPF is getting deducted since past 7 years. I opted for VPF since Jan 2014.

    I would like to know – If I withdraw PF amount soon, lets say next year

    – will it attract tax on complete amount ?

    – will it attract tax only on vpf amount since it has not completed 5 years period ?

    – will it not attract tax at all on amount since I already passed 5 year stage of my PF account ?

     

    Regards,

    Kunal

  17. My son has contributed to the EPF and VPF. Since it is a good avenue for steady appreciation, his contributions were well above the limit of 1 Lakh per year(for the accounting years 2011-12, 2012-13 and 2013-14 – woked one month only viz April 2013) – which was withdrawn in May 2013. For the remaining amount contributed, there was no concession obviously – and could be considered as having been contributed from "Tax Paid"  earnings, since Tax was calculated on Gross Income, prior to the EPF and VPF deductions. He  withdrew prior to the 5 year limit. This would mean that taxes are due. I presume that this would mean tax would be applicable on: 

    (1) Employers Contribution, with interest thereon

    (2) Employees contribution on which the concession was earned (viz: the amount used to exhaust the 1 lakh limit, since there were other avenues of availing of 80C like Life Insurance and PPF, the total contribution of which was well above the allowed limit. The amount which was not included in the exemption limit, was "tax paid" and therefore will be paid, on withdrawal,  without any aditional taxes. Interest on the entire amount of Employees contribution to EPF would be liable for tax on withdrawal. 

    (3) VPF, once again paid by the employee, after the calculation of taxes on the gross value, and which would , be included in the tax exemption, ONLY if the total limit was not crossed. The amount which was not included in the exemption limit, would be treated as "tax paid" and would be paid back without charging tax on it, which would amount to double taxation – (prior to contribution and on withdrawal). Again the interest on the total amounts of VPF would be liable for tax on withdrawal.

     

    Please confirm if the above reasoning is correct according to the Income tax rules. This would mean that the amount on which tax would be calculted, on withdrawal, would be a MAXIMUM of 1 Lakh per year plus the interest earned on all three components (EPF Employers Contribution, EPF Employees contribution and VPF) till the time of withdrawal?

    Thanks for an early reply.

    Prof. Angelo

  18. Hi
    i just joined railway.my PF (TIER)diduction has started.but i want more saving .can i start my VPF account.now
    plz suggest me

  19. Thanks. very nice article. There is 1 lakh limit for the depoit in ppf a/c per year. Are there any such limt for VPF other than 100% of Basic+ DA?

  20. I wanted to put the funds in VPF. I ahev below questions. Appreciate  your inputs on this

    1.Is there  any particluar month /time frame for this investment or  for its IT delclaration? or we cna start this investment at any time?

     

  21. Hi Suresh,
    Could you please give comparison on EPF v/s PPF v/s NPS. I am salaried person. Our company recently introduced NPS. Option is given to invest upto 10% of Basic salary and it is Tax free under 80CCD Part (2). However, this is taxable at the time of retirement. Could you kindly advise it is good option to invest in NPS or VPF. VPF is not taxable while withdrawing if I completed 5  years continuous contribution but NPS is taxable at the time of retirement.

    Regards
    Prakash

    1. Prakash, Both have Pros and Cons and I would not be able to provide complete insight on this comment. Please post a request on suggest a topic, I would have the comparison done in next couple of weeks.

  22. Dear Sir

    Which is better choice PPF or National Pension System Account. 

    Kindly make me understand PFRDA – NPS Accounts concept with its merits or demerits.

     

    Warm regards

    Piyush

  23. Hi,

    I opened a PF account (account A) in May 2001 and then transferred it to another company in sep 2004 and continued it till 2005 December. The account has been like that since then with no contributions. I have been in other company from 2006 till now and have one more PF account (account B) with a company I left in 2012. I have no PF account in my current org.

    If I withdraw from my 2001 PF account (account A), will it be taxable?

     

    Thanks

     

     

    1. Amit, As indicated you need to be in continuous service for 5 years to get exemption. Since you were there only for 4.5 years the amount received would be taxable.

  24. Pls share the link of ELSS blog.. and do you believe that Pharma sectors companies are still good for future investing or slowdown will be expected ?

    1. Hi Ali, Here is the link of ELSS funds. https://myinvestmentideas.com/2013/11/top-5-tax-saving-mutual-funds-elss-in-india-to-invest-for-2014/

      I believe Pharma would do well in next 3 to 4 years.

  25. Thanks for such nicearticle !!!

    Dear sir, just a questionin mind?

    I want to stop contribution in VVP then what should do?..At present time 24% deduction is frommy salary?

    second question is if i want to withdraw the VVP amount without resign the current organizaion or at the working time in same organization then it's possible or Not & what is proceedure for it?

     

  26. Dear Sir,  I have a query.  For getting tax free maturity benefit out of VPF, how the continuity of service ( hope it is 5 years) is calculated?  From the date of contribution or from the date of joining of an organisation?

    1. Sridhar, Tricky question. Since this is for tax free benefit of VPF, it may be immaterial for earlier service. It should start from the date you have taken VPF. I do not have any source to say this answer is 100%.

  27. Hi Suresh,

    Thanks for sharing very usefull information.

    I had a query regarding the EPF withdrawl in case of resignaton from one organization. In my case, I had seved y earier company fo 4.5 yrs and joined the other company. Its been almost 5 years now I have not withdrwan or transferred my earier EPF amount. I wanted to know if the amount will have the interest paid for the last 5 years after I left the last organization ?

    What would be best option..? Is it to transfer the EPF amount to current company of withdraw the amount. ?

    Also wanted to know how long can I leave the amount in my earlier Org EPF account ?

    Please suggest. Thanks

    Regards

    Yuvaraj

    1. Yuvraj 1) Interest will be paid till the amount you do not withdraw amount. 2) It is always best to transfer to new company and continue. It would be good retirement benefit 3) Don’t leave the amount with previous org, you should either transfer or withdraw. Nothing happens, but you would loose track. 

  28. Dear Sureshji,

                         Thank you for such a nice article.Your all the articles are of great use for investors.Regarding PPF, I would like to know can we open new account after completion of regular 15 years and extension of additional 5 year.Secondaly can we deposit more than 01 lakh in any PPF account though one shall get the benifit of tax saving upto 01 lakh u/s 80(c) of IT. Could we have PPF account in the name of kids though they are not earning members and not paying any tax.Please clearify.

    With Regards!

    Ajay K Gupta

    RIL, Jamnagar

    1. Ajay 1) You can extend your PPF account for 5 more years 2) You cannot deposit more than Rs 1 lakh. If you deposit, it would returned to your linked SB account 3) Individuals who attained age of 18 only can open any bank account or PPF account

  29. Hi Suresh, Stumbled upon this article during random surfing & I must say its very informative.Great job!

    I work in the private sector & was thinking of investing in VPF. But i had a few concerns.

    >Do we need to be employed with the same employer for 5+ years to get the tax-free maturity benefit. What if we change jobs & continue with the VPF? Also, in case we withdraw prior to 5 years, how much tax would be applicable?

    Thanks!

    Maddy

    1. Madhu, You need to be in continous service for 5 years and not with same employer. Means there should not be any break in your service. If there is any gap, it would be taxed as per income tax slab.

  30. Hello Suresh,

    Very nice and informative article.

    I'm an NRI and I understand that a PPF account opened prior to becoming an NRI can be contributed, however a new one cannot be opened.

    My question is could I continue to contribute to my PPF account after the initial 15 year period ?

    Regards,

    Kiran

    1. Kiran, Generally PPF account can be extended for 4 more years after maturity. However NRI’s cannot extend the existing PPF account and cannot add new contributions after 15 years period. However if you do not close the PPF, it would be auto extended and your PPF account would continue. The only thing would be you cannot add any more amounts in to that existing account

  31. Suresh,

    PPF is the best option amongst the given options. You have the option to extend further for a block of five years and rate of interest is higher as compared to EPF. However the only drawback is its become market linked and after DTC comes into effect the maturity amount will be taxable.

  32. Dear Suresh,

    Nice article….however, can you pls let us know where these corpus would be invested. I heard some portion of these corpus (EPF/VPF) would be invested in equities.

    Thanks

    Ravi N

    1. Hi Ravi, Amounts invested in EPF, VPF and PPF goes into Govt approved investments. Recently EPF/VPF proceedings have been used to invest in equities too upto 20% to earn higher returns so that they can pay the employees too at little higher level. Otherwise, they invest only in govt approved safe investment options.

      1. Dear Suresh,

        i am a PSU employee and my basic pay is 16400.. So based upon DA …. As of now Around 3400 per month h'd been deducted from my salary. I did lil bit of calculation, So for reaching 1 lac tax saving under Sec 80 C.. somewhere around 4000 extra i need to invest in VPF or PPF.. So my Question is.. whether i should go for it or Mutual funds/Infrastructure bonds are better ??? Pls suggest.

        Also, if u can tell us about SIP with SWP then i would be greatfull. 

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