Difference Between PF and PPF
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Key Takeaways: Employee Provident Fund (EPF) and Public Provident Fund (PPF) are Indian government-backed saving schemes that help you accumulate and build a corpus for the future. Can NRIs invest in these schemes? Read on to know more.
EPF (commonly known as PF) and PPF are two popular options available for Indians to save for retirement. These government-run schemes are highly secure and offer stable returns making them ideal for long-term investments.
Can NRIs invest in EPF?
EPF is a retirement scheme designed for salaried employees in India. Under this scheme, you must contribute 12% of your salary every month into the EPF account, while your employer also contributes an equal amount. Typically, you can make withdrawals when you retire or are unemployed for more than two months. You can also take a loan against the amount available in your EPF account for a specified list of reasons after you have completed 5 years of service.
When you change jobs, you can transfer your EPF account to the new employer.
However, if you decide to become an NRI, you will no longer be able to add to your EPF account. So, you can choose to continue with maintaining the funds in the EPF account or withdraw all the savings parked in the EPF account and close it.
Closing the EPF account before assuming NRI status
You can either get the EPF withdrawal form from your employer or visit the EPFO portal here and download it. You can also use the Aadhaar-based withdrawal form if your UAN or Universal Account Number is linked to your Aadhaar. You must mention the reason for withdrawing funds from EPF and submit the necessary documents as mentioned in the form. So, remember to withdraw the funds in your EPF account before you leave the country. If you do not make any contributions for three years, your account will become inoperative. However, the account will continue to earn interest until you reach the age of retirement.
Can NRIs invest in PPF?
PPF or Public Provident Fund is an investment instrument that offers fixed returns and is designed to help people build a retirement corpus for themselves. You can invest as little as INR 500 or as much as INR 150,000 in a financial year.
NRIs cannot open a new PPF account. However, if you had a PPF account before becoming an NRI, you can remain invested but cannot add fresh investments to the PPF account until the original maturity period, i.e. 15 years. You will continue to receive interest on your deposits. That said, unlike resident Indians, you are not permitted to use the 5-year extension facility on PPF accounts. Furthermore, the sums deposited in the PPF account and the interest earned on it may only be retained in India.
The money you deposit in the PPF account will still be considered tax-exempt in India. You should, however, find out the tax implications and the rules regarding foreign investments in your country of residence.
PPF withdrawals and loans
PPF accounts have a maximum tenure of 15 years. However, you can make partial withdrawals from your PPF account after completing five years from opening the account. The maximum amount you can withdraw each financial year is the lower of the following:
- 50% of your total PPF account balance at the end of the preceding year or
- 50% of the total balance in your PPF account at the end of the 4th financial year immediately preceding the year of withdrawal
Another essential feature of the PPF is that you can get a loan against the current balance in your PPF account after the expiry of one year but before the expiry of five years from the end of the financial year in which the account was opened. You can borrow up to 25% of the balance you held in your PPF account at the end of the second year immediately preceding the year in which the loan is applied for. For example, if you wanted to borrow in March 2020, you would be eligible for 25% of the balance in your account as of March 2019.
Difference between PF and PPF once you become an NRI
As an NRI, you are not eligible to open new PPF or PF accounts. You can, however, continue to hold your existing accounts until maturity.
|Investment amount||NA||The minimum investment is INR 500 and maximum is INR 150,000 in a financial year.|
|Tenure||The account continues to earn interest until you are 58 years of age.||15 years from the account opening date.|
|Rate of interest||8.33%^ p.a.||7.1%* p.a.|
|Tax benefit||Tax benefit on EPF only applies while you are still employed in India and not when you become an NRI.||The contribution is tax-deductible under Sec 80C, up to a limit of INR 150,000. The maturity amount is also tax-free.|
Final Note: If you are travelling abroad for a long tenure, you can choose to close your EPF or PPF account or continue holding the funds in your existing account. PPF and EPF are secure government-backed schemes and are good long-term investment options. PPF also have the advantage of being tax-friendly.
*As of June 2020. Interest rates are subject to change.
^for FY 2019-20