Difference Between GPF and PPF
Provident funds are renowned savings schemes crafted to build a secure retirement corpus for employees. However, every employee needs to understand two major provident fund accounts, GPF and PPF.
GPF stands for General Provident Fund, and PPF stands for Public Provident Fund. Though both are provident fund accounts, they are distinctive in who they cater to. In this post, we will distinguish GPF and PPF accounts in detail and help you understand their differences.
What is GPF?
GPF stands for General Provident Fund. It is a long-term savings plan for government employees in India. The General Provident Fund is a retirement savings account for government employees.
What is PPF?
PPF stands for Public Provident Fund. It is a popular long-term savings and investment strategy in India, with government backing. Individuals were encouraged to save by introducing PPF, which provides a secure and appealing investment alternative.
Overview of GPF and EPF
Feature | GPF | PPF |
Eligibility | Only government employees | Only organized sector employees |
Interest Rate | GPF Interest rate is 7.1% p.a. | PPF Interest rate is 7.1% p.a. |
Maturity | Reaches maturity at retirement | Reaches maturity 15 years from the date of opening. |
Features of GPF
The following are the qualities and benefits of GPF:
- GPF investors are eligible for tax benefits on earned interests, refunds, and gifts under the 1961 Income Tax Act (Section 80C).
- If the connected individual dies, the beneficiary is entitled to additional payment based on GPF criteria. This benefit is only available to workers who have worked for at least five years at the time of death.
- When collecting a final payment from a General Provident Fund account, there are no additional steps required.
Features of PPF
The following are the benefits and features of the Public Provident Fund:
- It is a risk-free strategy for investing and receiving interest on the money.
- The interest rate on a person’s investment is compounded.
- Loans and advances on your PPF balance.
- The investment is as little as Rs. 500.
- Any Indian native with a valid home address or domicile in the country is eligible to open a PPF account in addition to an individual GPF account.
- A partial withdrawal capacity is available beginning in the seventh fiscal year.
- The 1961 Income Tax Act (Section 80C) provides for a tax deduction.
- A Public Provident Fund account can be opened in a public sector bank, a post office, or any government-approved financial institution.
How are the Contributions Made for GPF and PPF?
For GPF: All government employees must contribute at least 6% of their salaries to the GPF. The highest contribution allowed is 100% of their wage. Furthermore, donations can only be discontinued in the event of suspension or retirement. These contributions typically cease three months before retirement.
For PPF: Both the employee and the employer contribute to the employee’s EPF account. Both parties’ normal contribution is 12% of their salaries (basic plus dearness allowance). However, with the new revisions, the government has cut the EPF contribution to 10% for both employers and workers.
What are the Tax Benefits of GPF and PPF?
For GPF: GPF is a tax-free savings plan. As a result, donations, interest collected, and refunds are free from tax under Section 80C of the Income Tax Act of 1961.
For PPF: Contributions to EPF accounts of up to Rs 1.5 lakh would be eligible for a tax deduction under Section 80C. Furthermore, if the subscriber withdraws the remaining money from the EPF account after five years of establishment, it is tax-free.
How is GPF Different from PPF?
When it comes to the aspect of financial security in the long term, it is quite crucial to go about several different options that are available, right?
GPF and PPF are two of those massive long-term plans everyone is looking for. Though these programs look and sound similar, they aren’t, you know that very well now.
The General Provident Fund is available to all government employees, and retirement benefits are based on payments made to the fund over a set number of years. As the name implies, the fund is available to government employees, and the government sets the interest rate from time to time.
On the other hand, the Public Provident Fund is intended for the whole people, and even private companies have access to it. Furthermore, PPF offers a set rate of interest. While GPF may be taken after an employee’s retirement, PPF can be withdrawn 15 years after creating the account and extended in 5-year increments if needed.
Schemes like the General Provident Fund and the Public Provident Fund assist individuals in developing the habit of saving. Furthermore, these tactics ensure that their immediate financial needs are met without the need for expensive bank loans. As a consequence, it is not unexpected that savings plans are among the most popular and substantially invested schemes now supervised by the Indian government.
Conclusion
Only when you belong to the government sector category can you invest in GPF, but any organized sector allows the investment of the Public Provident Fund.
Moreover, you can add to the benefit when you are already contributing to a GPF account as a Government employee; you can also contribute to the PPF account; isn’t that just great?
However, for the folks of any other organized sector, don’t get sad yet; there are plenty of other options for you to start investing apart from PPF too. You would just have to start looking for the right ones. But both these schemes can come in handy for employees in terms of securing a financially sound future.