Distinction between EPF, PPF and NPS and what are its tax implications and benefits

EMPLOYEE'S PROVIDENT FUND

The aforesaid scheme was started under Miscellaneous Act, 1952 under the Employee's Provident Fund for employee's benefit after his retirement. The Employee's Provident Fund is a collection of fund by the employee and employer.

Features of Employee's Provident Fund

The following are some of the features of Employee's Provident Fund;

• According to the scheme of Employee's Provident Fund, both the employer and employee contributes at the rate of 12% of the salary of employee and dearness allowance of the provident fund of the employee account each month.
• The contribution of the employee towards the Employee Provident Fund Account is 12% whereas the contribution of the employer is 8.33% towards the Employee’s pension scheme. The rest of the amount i.e.  3.67% is contributed towards to the Employee provident Fund Account.
• It is to be noted that the employee can open one Employee's Provident Fund Account during his lifetime. In case of change of job, the previous employer can transfer the amount to the current or new employer.

Benefits of Employee's Provident Fund

The following are some of the benefits of the Employee's Provident Fund;

• The Employee's Provident Fund scheme provides benefit to the employee as it saves a part of his salary on a monthly basis.
• Under the aforesaid scheme, the rate of interest is fixed by the Employee's Provident Fund Office. The present rate of Employee's Provident Fund is 8.5% per annum.
• The amount contributed by the employee towards the Employee's Provident Fund and interest accrued on the same will be tax free as collected.
•  In case of death of the Employee's Provident Fund account holder, the legal heir or nominee will be able to withdraw the amount available.

PUBLIC PROVIDENT FUND

The scheme of Public Provident Fund was introduced by the Government of India as the government considered it as one of the safest ways for investment in long term.

Features of the Public Provident Fund

• Any individual who is an Indian citizen is eligible to invest in the Public Provident Fund by opening an account in a nationalized bank, post office or any other major private bank.
• The individual who has a public provident fund can withdraw the partial amount from the aforesaid fund after the completion of 5 years from the date of opening the public provident fund account.

The Benefits of Public Provident Fund

The following are some of the benefits of public provident fund;

• The rate of interest under the public provident fund is decided on quarterly basis individually. The current rate of interest for the financial year 2021-22 for public provident fund is 7.1%.
• The investment made under the public provident fund scheme is risk free and the government pays the interest.
• A deduction of Rs. 1.5 lakh on investment under the Public Provident Fund scheme is allowed under Section 80C of the Income Tax Act, 1961.
• Loan can be taken against the amount deposited under the Public Provident Fund account after the expiry of the third year from the date of opening the Public Provident Fund account.

NATIONAL PENSION SYSTEM

Earlier, National Pension System was called as National Pension Scheme. The objective of this scheme is to make an investment for the subscriber. Under this scheme, the contribution by the subscriber which can be further invested into several market linked instruments including debts and equities.

Features of the National Pension System

The following are some of the features of National Pension System;

• The regulatory authority for National Pension System is Pension Fund Regulatory Authority of India.
• Indian Citizens between the age group of 18 to 60 years are eligible for investing under this scheme of National Pension System.
• The investments that are made under National Pension System can further be invested in four different classes including corporate bonds, equities, alternative assets and government bonds.

Benefits of the National Pension System Scheme

The following are some of the benefits of National Pension System Scheme;

• The investment can be withdrawn partially after the expiry of the third year from the date of opening of the account under the National Pension System Scheme.
• A tax benefit of Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961 can be claimed by the investor.

Benefits of National Pension System Account

The following are some of the benefits of National Pension System Account;

Low Cost

National Pension System is regarded as the lowest cost pension scheme in the world. The fund management fee and administrative charges are also low as compared to other costs.

Simplicity

The applicants can open an National Pension System Account with any one of the Post Office operating across India and accordingly get a Permanent Retirement Account Number (PRAN)

Flexibility

The applicant can choose the pension fund or own investment option or can choice for better investment returns

​Portability

The National Pension System Account can be operated from anywhere in India by the applicant. The contribution can be paid through any of the POP and SPs for the branch with which the applicant has a registration. Although, the applicant changes the city, job, etc can also make contribution through e-NPS. The same account can also be shifted to any other sector including corporate model and government sector etc.