When it involves planning your retirement, each Public Provident Fund (PPF) and Voluntary Provident Fund (VPF) are extraordinarily standard. Some take into account PPF to be the higher means to economize, whereas others choose VPF. Let’s discover out which of those is appropriate for you.
VPF (Voluntary Provident Fund)
If an individual chooses VPF, then he can contribute any quantity from his wage into it, offered that this contribution ought to be along with 12 p.c of his primary wage and dearness allowance. In a means, VPF could be thought of as an extension of PPF. Only the worker contributes to this, and there’s no contribution of the corporate or employer on this. If an worker desires, he also can contribute 100% of his primary wage and DA. VPF comes beneath the EEE class, i.e. the cash deposited, principal quantity, and interest should not taxable.
Any worker who’s working in India can put money into VPF. It earns interest on the charge of 8.5% each year. Investors additionally get tax exemption beneath part 80C of earnings tax on this and the return on maturity can be tax-free. It has a maturity interval until retirement, but when the job is misplaced in the midst of the profession then partial withdrawal can be made. Apart from this, cash can be withdrawn earlier than maturity for building of the home, medical causes, personal marriage, or marriage of somebody depending on you. It can be used to repay the mortgage.
PPF (Public Provident Fund)
This scheme is for all the staff of organized and unorganized sectors. By investing in it, you’ll be able to deposit cash on your outdated age or to fulfill future wants. In the PPF account, solely Rs 1.5 lakh could be invested yearly i.e. solely Rs 12,500 per 30 days could be invested. The minimal funding in that is Rs 500 each year. In this too, buyers get tax exemption of as much as Rs 1.5 lakh beneath part 80C. PPF is a long-term funding, it matures in 15 years. However, partial withdrawal could be executed right here properly after 7 years. The interest earned on this and the maturity quantity are each tax-free.
What is the distinction between VPF and PPF
1. VPF is just for salaried class folks, whereas anybody can put money into PPF.2. You can make investments solely a most of Rs 1.5 lakh yearly in PPF, whereas there isn’t a most funding restrict in VPF.3. Currently, you get 7.1% annual interest on PPF, whereas VPF at present will get 8.5% annual interest.4. The maturity of VPF is until retirement, it can’t be prolonged, however PPF could be prolonged for five years after maturity5. Loan could be availed after 6 years of funding in VPF, however not on PPF.
Tax Saving in VPS and PPF
You can make investments solely as much as Rs 1.5 lakh yearly in PPF, which is exempted beneath 80C, whereas there isn’t a tax on funding as much as Rs 5 lakh in VPF. These new guidelines have come into impact from April 1, 2021. According to those new guidelines, you’ll be able to make investments Rs 2.5 lakh in EPF and VPF in a monetary yr and the interest earned on it will likely be tax-free. However, in case you make investments above Rs 2.5 lakhs, you’ll have to pay tax on the interest you earn. If there isn’t a contribution of the employer within the EPF account, then this restrict will enhance to Rs 5 lakh. This occurs in VPF since there isn’t a contribution by the employer. Therefore, in VPF, it can save you tax on the interest earned on funding as much as Rs 5 lakh yearly.