If you are a working individual and financially savvy, you must have surely heard of these provident fund schemes that are primarily retirement savings plan and aim to meet your future financial needs. There are available 3 provident fund accounts in India namely EPF or PF or Employees' Provident Fund, PPF or Public Provident Fund and General Provident Fund (GPF) account. However, as these schemes sound more or less same, there remains some confusion which we clarify below:
1. EPF: It is a compulsory saving tool for retirement for employees both in the organized and unorganized sector. Companies having a workforce of over 20 employees need to mandatorily open EPF account in their names. Both the employer and employee make similar contribution to the employee's EPF account and it is 12% of basic pay and dearness allowance.
For the financial year 2017-18, EPF account fetches return at the rate of 8.55% per annum. In the previous financial year, Employee Provident Fund Organisation (EPFO) provided interest rate of 8.65% on EPF account.
The minimum lock-in period in case of EPF account is 5 years. However partial withdrawal is allowed in specific cases such as purchase or reconstruction of house, marriage of self, daughter, son or brother etc., for medical treatment of family members,, loan repayment, non-receipt of wages for two consecutive months etc.
Also, investment or contribution towards EPF kitty up to Rs. 1,50,000 in a financial year qualifies for tax deduction under section 80C of the Income Tax Act.
2. PPF: Public provident fund is an investment option backed by sovereign guarantee and comes with tax benefits. All citizens are eligible to open a PPF account either in their name or on behalf of a minor. The lock-in period of the PFF account spans 15 years which can be further extended in block of 5-years and more if an individual does not sees any financial liability to be discharged at hand.
Minimum investment in PPF account is Rs. 500 while the maximum an investor can invest in the scheme is Rs. 1.5 lakh in a financial year.
The government decides the interest rate for PPF on a quarterly basis based on the 10-year benchmark bond yield. For the quarter October-December, interest rates have been revised upward for most of the small saving schemes including PPF. The scheme currently fetches 8% rate of interest per annum and it is compounded annually i.e. interest is added to the principal amount every year.
An individual can make deposits in PPF account either as a lump-sum amount or in a maximum of 12 installments on a yearly basis. Further any of the payment modes i.e. yearly, half-yearly, quarterly or monthly option can be chosen.
The request for partial withdrawal is entertained every year from the 7th financial year from the account opening year.
Investment made towards the PPF account, interest earned as well as maturity proceeds are all tax exempt i.e. why the investment option is said to fall in the EEE category. PPF qualifies for tax benefits under Section 88 of Income Tax Act. Amount outstanding to the credit also does not arise any wealth tax implication.
GPF: This provident fund scheme is available for government employees only. A government employee becomes a member of the GPF scheme by contributing some percentage of his or salary towards the account. Notably, unlike EPF account, herein the contribution is made only by the employee and not by the employer i.e. the government.
The subscriber can make monthly contribution to the scheme except during the period in which he or she faces suspension. For the quarter ending December, the GPF account offer 8% return. For the July-September quarter, GPF provided 7.6% rate of return.
The contributions to the scheme are stopped in advance i.e. 3 months before the superannuation date. And as and when the government employee retires, instructions are given to release the final balance amount in the account on an immediate basis.