There are many employees who just landed their first job and don’t have any clue about investing. Here is the detailed description about the two kinds of long term investment options EPF (Employee Provident Fund) and PPF (Public Provident Fund)
The Employment Provident Fund EPF is also referred to as retirement benefit scheme is applicable for salaried employees. At present 12% amount is deducted from the salary of the employees. Employee can also contribute more than the amount that is stipulated if it is allowed by the scheme. Also, the contribution is made by employer as well.
Public Provident Fund PPF is available for everyone. Whether you are a freelancer, a consultant, house wife, working on a contract basis and also if you are not earning. PPF account can be opened by any individual in nationalized bank or any of its branches. It can also be opened at certain post offices. Rs 500 is the minimum amount that can be deposited per year and Rs 70,000 every year is the maximum amount
The return on the investment in PPF is 8% per annum whereas in EPF is 8% per annum.
The amount in the EPF can be obtained only at the time of resignation or retirement or can be transferred to another company if you switch your job. The amount accumulated in PPF can be withdrawn after 15 years at the end of financial year.
With both PPF and EPF one can enjoy the benefits from Section 80C. Income Tax Act Section 80C give you deduction of Rs. 1.20 Lakh from the income. If someone has worked for five years or EPF has been transferred then the money is not taxed in case of EPF. But if the withdrawal is before 5 years then it is taxed. However with PPF you don’t have to pay any tax.
If money is required urgently one can take a loan if you want the money for your daughter’s wedding or if you buying a house in case of EPF.
With PPF, loan can be taken from the third year onwards and the amount is maximum of 25% at the end of financial year. Withdrawals can be made from the 6th year with 50% of the amount of fourth financial year. Financial year is from April 1 to March 31. For example if you opened an account in the financial year 1996-97 the loan can be taken in 1998-1999 and the amount will be 25% of the balance in the end of first year that will be March 31, 1997.
So in a nutshell, Section 80C is applicable for both. But in the case of EPF contribution is made by the employer and the interest is 8.5% compared to 8% in case of PPF. But on the flip side, there is no tax with the scheme of PPF.
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