EPF vs PPF: Which Should You Choose?

Two government-backed schemes, two different jobs

EPF (Employees' Provident Fund) and PPF (Public Provident Fund) get compared constantly because they share a lot on the surface: both are backed by the government, both compound annually, both come with tax breaks, and both are built to be left alone for years. But they exist to solve different problems. EPF is a payroll-linked retirement scheme tied to formal employment. PPF is a standalone savings account anyone can open, whether or not they have an employer at all.

How EPF works

If you work for an establishment with 20 or more employees and earn up to ₹15,000 a month in basic pay plus dearness allowance, EPF coverage is compulsory; above that threshold it can still apply with employer consent. Both you and your employer contribute 12% of basic pay plus DA — but not all of the employer's share goes into your EPF balance. 8.33% of it (calculated against the ₹15,000 statutory ceiling) is redirected into the Employees' Pension Scheme (EPS), with the remaining 3.67% added to your EPF account alongside your own 12%.

EPFO's board sets the interest rate once a year. For FY 2025-26, the rate was set at 8.25% per annum — approved by the Finance Ministry in June 2026 and credited from July 1, 2026. As of this writing, EPFO had not yet declared the FY 2026-27 rate; check EPFO's own site for the current figure before treating any rate as fixed for the year ahead.

How PPF works

PPF has no employer and no salary requirement. Any resident Indian individual can open one account (plus one for a minor in their care), with a minimum deposit of ₹500 and a maximum of ₹1.5 lakh per financial year. The account locks in for 15 years, though it can be extended afterward in 5-year blocks, with or without further contributions. Partial withdrawals become available from the 7th financial year, and a loan against the balance is available between the 3rd and 6th years.

The rate is set quarterly by the Department of Economic Affairs, not annually. For Q2 of FY 2026-27 (July-September 2026), it was left unchanged at 7.1% per annum. Because it's reviewed four times a year, PPF's rate can move more often than EPF's — always check the current quarter's notification rather than assuming continuity.

Tax treatment: mostly aligned, with one catch

Both schemes are "EEE" — Exempt, Exempt, Exempt. Contributions qualify for deduction under Section 80C (sharing the same overall ₹1.5 lakh 80C ceiling across all your 80C instruments combined, not ₹1.5 lakh for each), the interest that accrues is tax-free, and withdrawal at maturity is tax-free too.

The exception on the EPF side: if your own contribution to EPF exceeds ₹2.5 lakh in a year (₹5 lakh if your employer makes no matching contribution), the interest earned on the amount above that threshold becomes taxable as "income from other sources," with TDS deducted at source. This rule, introduced from FY 2021-22, mainly affects higher earners making large voluntary EPF contributions — most salaried employees on standard 12% contributions won't cross it.

So which one should you prioritize?

If you're salaried and EPF-eligible, your employer's matching contribution is effectively a guaranteed extra 12% of pay added to your retirement savings for doing nothing beyond staying employed — there's rarely a reason to opt out of that if you have the choice. PPF is the natural next step: a voluntary, disciplined, long-lock-in complement for money you want to keep separate from employment status entirely, which matters if you freelance, run a business, switch jobs often, or simply want a second tax-advantaged bucket beyond your EPF ceiling.

They're not mutually exclusive, and most people who use both aren't choosing between them so much as sequencing them: EPF handles the employment-linked piece automatically through payroll, and PPF handles the voluntary, self-directed piece on top.