After a salary hike, many people wonder where to park the extra money. Two options usually come up, EPF and PPF. While both are government-backed and meant for long-term savings, they work very differently. Here’s a simple breakdown to help you make an informed choice.
What is EPF?
EPF, or Employees’ Provident Fund, is designed for salaried employees. Both the employee and employer contribute to it every month. The employee’s share is deducted directly from the salary. The interest rate on EPF is revised every year. Currently, it stands at 8.25%.
How EPF Grows Over Time
If you and your employer together contribute ₹12,500 per month, the total corpus can grow to around ₹45 lakh in 15 years, assuming the current interest rate continues.
EPF: Withdrawal and Tax Rules
EPF can be fully withdrawn after the age of 58, and the amount is tax-free. Partial withdrawals are allowed before retirement for specific reasons like housing, education, or medical needs.
If you complete five years of continuous service, withdrawals remain tax-free even before retirement. However, any withdrawal before five years of service is taxable.
In case of unemployment lasting one year, the full EPF amount can be withdrawn, but taxes will apply.
What is PPF?
PPF, or Public Provident Fund, is open to everyone—salaried, self-employed, or even those without a fixed income. The maximum investment allowed is ₹1.5 lakh per year.
The current PPF interest rate is 7.1%, and like EPF, it is revised annually.
How PPF Grows Over Time
If you invest ₹12,500 per month, your corpus can reach around ₹41 lakh after 15 years, based on the current rate.
PPF: Lock-in and Tax Benefits
PPF has a strict 15-year lock-in period, which means you cannot withdraw the full amount before maturity.
The biggest advantage of PPF is taxation. Investments, interest earned, and final withdrawals are all completely tax-free. There is no tax impact at any stage.
EPF vs PPF: Key Differences
- Eligibility: EPF is for salaried employees; PPF is open to everyone
- Contribution: EPF includes employer contribution; PPF does not
- Interest Rate: EPF currently offers higher returns than PPF
- Investment Limit: PPF is capped at ₹1.5 lakh per year
- Liquidity: EPF allows limited withdrawals before maturity; PPF is more restrictive
So, Which One Should You Choose?
For salaried individuals, EPF should be the primary retirement tool. It offers higher returns, employer contribution, and better flexibility.
For self-employed individuals or those without EPF access, PPF works as a stable, long-term savings option.
The decision should depend on your job type and income structure, not on what others are investing in.
The Bottom Line
Both EPF and PPF are safe, government-backed instruments. But they serve different purposes. Understanding how each works can help you use your extra income wisely and avoid investing out of confusion or FOMO.
