Retirement plans: Know about EPF, PPF and VPF before choosing a provident fund scheme

For all the salaried individuals in India, making retirement plans is very crucial in order to ensure a financially secure future, in line with one’s present financial position, future goals, and risk appetite. Speaking of which, there are several government-backed retirement plans that individuals can take up for investing in their future plans. Apart from the traditional pension options, employees can also opt for various kinds of provident funds that will help them to save a huge amount of money to later receive as a whole upon retirement. Among these, the Voluntary Provident Fund (VPF), Employee Provident Fund (EPF) and Public Provident Fund (PPF) are some common choices that will not only provide good returns but also help to meet one’s financial goals. However, each one of these has its own separate rules, criteria and risk factors that people need to consider before choosing them. Know more about these three investment options for retirement planning:

Employee Provident Fund (EPF)

A mandatory retirement savings scheme in which both employer and the employee contribute, EPF is based on the contribution of the employers and the employee’s salary structure. As a part of EPF, employees can withdraw partial amounts during their tenure and can receive the entire corpus only after their retirement. The plan which is suitable for those who need a retirement-focused savings option also provides tax benefits.

Public Provident Fund (PPF) 

In case of PPF, employees can contribute to the funds with reduced taxes for up to a minimum period of 15 years. Just like EPF, partial withdrawals are allowed in PPF after a certain period. A big bonus point of this plan is that both salaried and non-salaried individuals can invest in PPF.

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Voluntary Provident Fund (VPF)

While the monthly contribution amount is fixed in the voluntary provident fund, employees can choose to give higher amounts on a voluntary basis. This means individuals upon receiving any kind of additional income (bonus, interest, extra income), can contribute it to their VPF. If individuals withdraw the money after a period of five years, no taxes will be deducted.

Which retirement plan is better?

When comparing the three types of retirement plans, EPF and VPF are almost the same, except for the option of making voluntary contributions. In the case of PPF, employees are given a lock-in period but can have flexible withdrawals.

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Speaking about the taxes on these schemes, the interest amount earned under the Employee Provident Fund (EPF) and Voluntary Provident Fund (VPF) is not taxed if it remains below Rs 2.5 lakh in a financial year for non-government employees and Rs 5 lakh for government employees. The interest, though will be subject to taxation if the interest exceeds these thresholds.

On the other hand, the interest in case of the Public Provident Fund (PPF) is not taxable.

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