Keeping some funds aside for your retirement is necessary. While reading about retirement funds, you must have heard about provident funds.
There are two types of provident funds - GPF and EPF. This article will cover the differences between them, which will help you choose the right one for yourself.
GPF, or General Provident Fund, is a specific type of provident fund account for all employees working under the Indian Government.
A GPF account enables government employees to give a percentage of their salary to the General Provident Fund. Owing to the above procedure, the total amount accumulated during their employment period is paid to the employee upon retirement.
GPF interest rates are generally reviewed in specific periods following government-prescribed regulations. The current interest rate for GPF is 7.1% (w.e.f. Apr-Jun 2023).
EPF, or Employee Provident Fund, is a specifically sponsored government-regulated savings plan for all employees, including those employed in the private sector. Any organization employing 20 or more employees is eligible to enroll in the EPF program.
The Employee Provident Fund Organization (EPFO) regulates and executes rules for the EPF schemes. It is done under the Employee Provident Fund and Other Provisions Act 1952.
The GPF is available only to government employees. Some of the main features of GPF are as follows -
The Government Provident Fund is managed and regulated solely by the Department of Pension and Pensioner's Welfare under orders from the Ministry of Personnel, Public Grievances, and Pensions.
As per the Pensioners' official portal and their laws, to become a functioning member of GPF, the interested government employee must start contributing a portion of their salary to the said GPF account.
The eligible and interested employee needs to contribute towards the concerned GPF account every month. The only exception is the period during which the subscriber is under suspension, if applicable.
Additionally, the subscriptions will be put at a halt for three months before the date of the employee's retirement or superannuation.
Upon the subscriber's retirement, instant payment of the final balance will be made. They need not submit any extra application form or written letter to get the final payment from the General Provident Fund.
During the time of the employee's joining the subscription, the subscriber is required to nominate a family member for future reference.
Thus, this chosen nominee acquires the right to receive the collected amount from the provident fund in the unfortunate event of the subscriber's death.
According to the specifically crafted GPF rules and regulations, the nominee is paid an additional amount upon the death of the subscriber. Although, this feature is subject to specific terms and conditions.
One of them is that the additional amount payable must not exceed ₹60,000. Additionally, the nominee is eligible for this benefit only if the subscriber has been in service for a minimum of 5 years at the time of their death.
Some of the key features of an EPF account are mentioned below -
For every employee, it is compulsory to contribute towards EPF and EPS if they are earning a basic payment of up to ₹6500. If an employee is earning a basic salary over ₹6501 every month, they will be eligible to ask for PF deductions from his salary.
Both parties, the employee and employer, in all hierarchies, have to contribute a 12% portion of the basic salaries and dearness allowance into the provident fund (PF) account. Therefore, the total calculated contribution to the PF is 24% per month.
In this specific provident fund account, the maximum amount, an entire 12%, is contributed solely by the employee, while only a part of it, approximately 3.67%, is contributed by the employer.
The remaining contribution from the employer's side is 8.33% and is diverted to the Employee's Pension Scheme or EPS.
What is essential to note is that if the salary of the employee exceeds ₹6500, then the employer's contribution to the EPS is bound to 8.33% of ₹6500 (Rs. 541) per month.
The major differences between GPF and EPF are discussed below based on three criteria -
All government employees who are Indian residents are eligible for a GPF account. It is also mandatory for certain ranks within jobs when it comes to specific government organizations.
All employees, including those employed in non-government or private organizations, are eligible for EPF accounts. It is generally referred to as a special benefit scheme for post-retirement salaried employees.
One of the best features of the GPF is that it has a provision of GPF advance. It is an interest-free loan amount that you can withdraw from the savings of the general provident fund.
The borrowed amount must be paid back in consistent monthly installments. No interest is required to be paid on the concerned GPF cash advance. Employees can take out as many GPF advances as they need throughout their careers.
In the case of an EPF account, the entire saved amount is presented to the employee after their retirement or at the time of superannuation. The EPF, therefore, falls under one of the several benefit schemes of an organization toward its employees.
The rate of interest of both GPF and EPF are regulated by the Government of India. For GPF, the return you get on investment, or ROI, is currently 7.1%.
The ROI for EPF currently is at 8.15%.
The differences between GPF and EPF are mentioned in short in a table format for better understanding -
| GPF | EPF |
|---|---|
|
Only government employees are eligible |
All employees are eligible |
|
Current interest rate is 7.1% |
Current interest rate is 8.15% |
|
The deposit Limit is a minimum contribution of up to 6% of salary. |
The maximum contribution is 100% of an employee's salary. The minimum is 12%. |
|
The Maturity Period is till retirement. It's also allowed after the completion of 5 years. |
The maturity period is till 58 years of age. |
|
Loans can be availed anytime during the whole service of the government employee, throughout their career. |
No loan facility |
GPF or a General Provident Fund is a provident fund account for people employed with the government of India. Furthermore, a General Provident Fund is necessary for government employees in some organizations, especially for workers who belong to a specific class of salary.
Any employee that belongs to the private sector is not eligible for GPF, whereas EPF is available to be accessed by private sector employees, and unlike a GPF, it's not a compulsion.
Both in EPF and GPF, the subscriber must contribute a certain percentage of their total salary. The maturity period of GPF is after the subscriber's retirement whereas the maturity period for EPF is 58 years of age for the employee.
No, EPF and GPF are handled by different bodies and cannot be merged or transferred.
The interest rate of GPF is decided by the government of India and it is currently 7.1%.
For employees earning Rs.15,000 or more, EPF is compulsory. For other employees, it is a voluntary savings scheme.
GPF or General Provident Fund is a provident fund scheme for people who are employed with the Government of India.
EPF or Employee Provident Fund is a provident fund account for all individuals, including private sector employees.
The maturity period for GPF is the retirement of the account holder.
The maturity period for an EPF scheme is when the subscriber turns 58 years old or at the time of their retirement, which may or may not overlap.
Yes, GPF is tax-free. The contributions, interest, and returns are all exempt from taxes under Section 80C.
In the event of the death of the subscriber of the General Provident Fund, the nominee is paid an additional amount of money that equals the average balance present in the GPF account for three years following the death of the subscriber. This feature is subject to terms and conditions.
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