PPF vs VPF

PPF and VPF are retirement schemes launched by the government of India to inculcate the habit of saving in people. But how are they different from each other? Read to know the difference between PPF and VPF.

What is PPF?

PPF stands for Public Provident Fund and it is a scheme offered by the Government of India to save up for your retirement. PPF is available for all citizens of India, despite their employment status, i,e., salaried, self-employed individuals, students, retired, and unemployed folk.

PPF interest rates are reviewed every quarter based on the rates on government bonds during that quarter. It is a voluntary savings scheme and you can contribute anywhere from Rs.500 to Rs.1.5 Lakh every year. 

What is VPF?

VPF stands for Voluntary Provident Fund and it is a retirement cum savings scheme offered by the Government of India. The VPF is an extension of the Employee Provident Fund of the EPF. It is a savings scheme for employees who work in the organized sector. 

The Employees Provident Fund Organization established under the Employees’ Provident Fund Act of 1956, declares the EPF interest rate every year.

Difference between VPF vs PPF

There are many differences between PPF vs VPF, which are discussed in short here - 

Detailed Comparison - PPF vs VPF

Here is a detailed criteria-wise comparison between VPF vs PPF so you can have more clarity about their differences -

Tax Benefits

People often invest in PPF to save taxes. You can save up to Rs.1.5 Lakh a year under Section 80C of the Income Tax Act by investing in PPF. Even the maturity amount is tax-free.

Even the maturity amount of the VPF account is tax-free. So the tax benefits between VPF vs PPF are very similar to each other.

Interest Rates 

As compared to VPF, PPF is a safer option but offers lower interest rates. Both of these schemes' interest rates are decided by the Government of India, but the rates vary between VPF vs PPF.

The current interest rate for VPF 2022-23 is the same as that of EPF and has been fixed at 8.15%, whereas the current interest rate of PPF for Q3 of the financial year 2023-24 is 7.1%.

Eligibility

PPF accounts can be opened by all resident Indians irrespective of their employment status. Employed, self-employed, unemployed, or even retired individuals can open PPF accounts. In fact, even minors can open accounts if their guardians represent them.

Only Hindu Undivided Families cannot open PPF accounts. NRIs cannot open new PPF accounts, but if they opened the account while they were still residing in India, they can enjoy its benefits.

VPF accounts can be opened by employees of firms that are registered under the EPF Act.  

Contributions

The contributions in a PPF account are made by the account holder. Contributions can be by the guardian on behalf of a minor. Account holders can make a maximum of 12 contributions to their PPF accounts. 

The VPF is a voluntary retirement scheme, that can be started along with the EPF. Both the employee and employer are required to contribute 12% to the EPF account. However the employer is under no obligation to contribute extra for the VPF account.

Withdrawals 

PPF has a tenure of 15 years and can be extended for blocks of 5 years. It has a lock-in period of 5 years, after which you can opt for partial withdrawals. 

People can withdraw money from their VPF accounts according to their requirements. But if you withdraw an amount from the account before 5 years, the amount will be taxed.

Both PPF and VPF are great schemes to save for your retirement. They are backed by the government which makes them safe investment options. 

If you are a salaried employee and already have an EPF account, you can talk to your HR and open a VPF account. The amount you choose to invest will be deducted from your salary every month. The maximum amount you can invest in your VPF account is 100% of your salary.

On the other hand, a PPF account can be opened by any Indian citizen. Tax benefits can be enjoyed for both PPF and VPF accounts. The final choice between VPF or PPF depends on your retirement goals, employment, and preference.

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