PF Investment: EPF and PPF Investment for FY 2013-2014

Employee Provident Fund (EPF) is maintained by Employee Provident fund Organization (EPFO). After a 1.25% decline in the year 2011-12, EPF rate was 8.25%. EPFO announced an increase of 0.25% in the rate of EPF for the year 2012-13. This is very low compared to the earlier years. A high expectation was made by people regarding increase but they had to be satisfied with the 8.5% rate of interest for financial year 2013-2014 as well.

Though there was a speculation of the EPF interest rate will be hiked and the new rate might be 8.6% to 8.8%, Mallikarjun Kharge, Labor minister has sent in a clarification on May 1, 2013 that no such changes have been finalized or are applicable as of yet.

What is EPF?

EPF is employee provident funds where employees  must mandatory invest for retirement. This investment are deductible under section 80C. As we know, u/s 80C deductions are limited up to Rs. 1,00,000 only.

EPF investment is limited up to 12% of the basic salary and if the scheme provides, up to 15% by employee.

Employer also contributes 12% in EPF /VPF.

Voluntary investments in EPF has no such ceiling and can be contributed up to 100% of the basic salary. The maximum tax deduction available under for EPF investment including Voluntary contribution is Rs. 70,000.

Trend of EPF rate

If we look at the historical data, EPF rates continuously increased until 1991. For a whole decade it remained constant at 12% and after that, it started declining. It was raised in year 2010-11 but again declined in the next year.

About EPFO

EPFO is an organization that regulates EPF/VPF interest rates. These rates are announced every year and continued for the whole year. An EPF holder gets monthly income from the EPF investment and most of the times, considered as a major income of retired employees.

This organization is a government organization that regulates the deposits and rates of EPF. They accept deposits and invest them in safe avenues. The rates are determined by EPFO according to the revenues generated by EPFO. It was expected that EPFO will increase the rates with around 0.50%. But the revenues of EPFO were not so high and increasing rates might have created problems for the organization.

EPF vs. PPF

PPF is Public provident fund where anyone (who is over 18 as per present rules) can invest. It can be any Indian resident including the housewife, the self employed as well as  salaried employees who posses EPF account.

Investments made in PPF is also deductible available under section 80C. The major differences between EPF and PPF investment is that PPF at present earns lower interest than EPF. Other than that, employer contribution is lost in PPF. However, PPF is beneficial for those who are not employed or not eligible to invest in EPF.

PPF investment for 2013-2014 will attract an interest rate of 8.7%

A total of INR 70,000/- is exempt from tax and it includes the investments made in Employee Provident Fund as well as Public Provident Fund Account.