The Public Provident Fund (PPF) and the Voluntary Provident Fund (VPF) are two financial instruments offered by the government to help build a retirement corpus.
While the two government-run schemes may appear similar, there are certain key differences. For instance, individuals serving in the unorganised sector, or self-employed persons are eligible to open a PPF account. On the other hand, only salaried employees are eligible to open a VPF account.
A PPF account offers a fixed-income security scheme wherein an individual is able to invest a maximum of Rs 1.5 lakh or a minimum of Rs 500, thus ensuring tax-free and guaranteed returns.
With a VPF account, a salaried individual can contribute a bit more towards the retirement corpus, besides the compulsory deduction of 12% of the basic salary plus the dearness allowance (DA).
An employee is allowed to contribute up to 100% of their basic salary and DA. However, an employer cannot put a compulsion on the employee to invest in VPF.
For a VPF account, the interest rate offered is 8.15%, which is the same as an Employees’ Provident Fund (EPF) account. However, for a PPF account, the interest rate offered is comparatively lesser at 7.10%.
The returns gained from a PPF account are tax-free, while contributions towards a VPF account attract tax deductions, as per Section 80C of the Income-tax Act (ITA), 1961.
In the case of a PPF account, an individual cannot withdraw the deposited amount up to the maturity period, which is 15 years. Meanwhile, for a VPF account, an employer is free to withdraw the funds at their own discretion. However, this is subject to a condition whereby if an employee withdraws the funds before the completion of five years of the VPF account, the amount will attract taxes.
Based on an individual’s financial goals and current financial situation, they can make a choice related to an increase in the allocation of funds towards VPF or PPF contributions.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.