Provident Fund (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. Public Provident Fund (PPF) The Public Provident Fund has been established by the central government. You need not be a salaried individual, you could be a consultant, a freelancer or even working on a contract basis. 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. Return on the investment Employee Provident fund/ Provident Fund: 8.5% per annum, Public Provident Fund: 8% per annum 3. Lock in Period Employee Provident Fund – The amount accumulated in the Provident Fund 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. Public Provident Fund – 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 The entire balance can be withdrawn on maturity, that is, after 15 years of the close of the financial year in which you opened the account.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. 4. The tax impact Employee Provident Fund – The amount you invest is eligible for deduction under the Rs 100,000 limit of Section 80C. If you have worked continuously for a period of five years, the withdrawal of Provident Fund is not taxed. If you have not worked for at least five years, but the Provident Fund has been transferred to the new employer, then too it is not taxed. The tenure of employment with the new employer is included in computing the total of five years. If you withdraw it before completion of five years, it is taxed. But if your employment is terminated due to ill-health, the PF withdrawal is not taxed. Public Provident Fund – The amount you invest is eligible for deduction under the Rs 1,00,000 limit of Section 80C. 5. Withdrawal Employee Provident Fund – If you urgently need the money, you can take a loan on your PF. 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. Public Provident Fund – You can take a loan on the PPF from the third year of opening your account to the sixth year. So, if the account is opened during the financial year 1997-98, the first loan can be taken during financial year 1999-2000 (the financial year is from April 1 to March 31). 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. In this case, it will be March 31, 1998. You can make withdrawals during any one year from the sixth year. You are allowed to withdraw 50% of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower. If the account extended beyond 15 years, partial withdrawal — up to 60% of the balance you have at the end of the 15 year period — is allowed. Conclusion Contribution made to EPF and PPF gets deduction under Section 80C and the interest earned is tax free. That is both works under EEE (Exempt, Exempt and Exempt) tax regime. However, PF is better than PPF in two aspects – In the case of PF, the employer also contributes to the fund. There is no such contribution in case of PPF. The rate of interest on PF is also marginally higher (currently 8.50%) than interest on PPF (8%).