EPF vs PPF: Which is better for tax savings under the new TDS rules?
- Rashmita Choudhary
- May 15
- 12 min read
In India, tax-saving investments are an essential part of any financial strategy, and two of the most popular options available to taxpayers are the Employees' Provident Fund (EPF) and the Public Provident Fund (PPF). These two instruments are commonly used for long-term wealth creation and tax-saving purposes, making them highly relevant to individuals looking to optimize their tax liabilities.
Both EPF and PPF fall under the Exempt-Exempt-Exempt (EEE) category. This means that both the contributions you make, the interest earned, and the withdrawals are all tax-free, offering significant advantages in terms of tax savings. However, despite their similarities, there are crucial differences between the two that could influence your decision when choosing the best option for your financial and tax goals.
One of the major factors influencing this decision in FY 2025-26 is the recent amendments to the TDS (Tax Deducted at Source) rules. These changes, which directly affect the taxation of interest earned on both EPF and PPF accounts, have made it more important than ever to understand the nuances of these investment tools.
Table of Contents
EPF vs PPF: Which is better for tax savings under the new TDS rules?
Both EPF and PPF offer attractive tax-saving benefits, but when it comes to choosing the right option, the differences are important to consider, especially in light of the new tax regime for FY 2025-26.
Under the new tax regime, the ability to claim deductions under Section 80C for investments like EPF and PPF has been removed. This means that while both EPF and PPF still provide tax-free growth and withdrawals, you can no longer benefit from upfront tax deductions for your contributions under the new tax system.
However, PPF continues to be a highly attractive option due to its tax-free interest and tax-free maturity amount. Since the interest earned on PPF is not subject to taxation, it can serve as a stable, long-term option for those looking to accumulate wealth without worrying about the tax implications of interest income. The EE status of PPF ensures that you enjoy tax exemptions at each stage, contribution, interest, and withdrawal.
On the other hand, EPF offers a higher contribution limit, with employees contributing up to 12% of their basic salary (matched by the employer). For salaried individuals, EPF is an appealing option, as it also includes employer contributions, which can significantly boost the overall corpus. However, unlike PPF, the interest on EPF contributions exceeding a certain limit is taxable, especially if the total contributions (including EPF and NPS) exceed ₹7.5 lakh annually.
In conclusion, the choice between EPF and PPF largely depends on your eligibility, the amount of contribution you intend to make, and how important tax-free interest and withdrawals are to your financial strategy. If you are salaried and want to take advantage of employer matching, EPF may be the better choice, but if you are looking for a stable, long-term investment with entirely tax-free growth, PPF is a strong contender.
EPF vs PPF: Key Differences for Tax Savings
The Employees' Provident Fund (EPF) and Public Provident Fund (PPF) are both effective tools for long-term savings and tax planning, but they cater to different sets of individuals and have varying benefits, particularly under the new tax regime for FY 2025-26. Both fall under the Exempt-Exempt-Exempt (EEE) tax status, meaning the principal contribution, interest earned, and final maturity amount are tax-free. However, several distinctions make one more advantageous over the other depending on an individual’s financial situation and preferences.
Nature of Investment:
EPF is primarily for salaried employees and is managed by the government under the Employees' Provident Fund Organisation (EPFO). Both employee and employer contribute to the EPF, with the employee contributing up to 12% of their basic salary. Employer contributions are also substantial, making EPF a lucrative option for employees.
PPF, on the other hand, is open to all Indian citizens, including self-employed individuals, minors, and salaried employees. It is managed by the Indian government, and individuals can contribute up to ₹1.5 lakh annually. PPF has a fixed tenure of 15 years, but it offers flexible contribution amounts.
Tax Benefits:
EPF contributions are eligible for tax deductions under Section 80C up to ₹1.5 lakh per annum, but the new tax regime does not allow deductions for such contributions. However, EPF interest is tax-free up to ₹2.5 lakh, and any excess interest is taxed.
PPF contributions are also eligible for tax deductions under Section 80C up to ₹1.5 lakh per annum under both the old and new tax regimes. Additionally, PPF interest and maturity amounts are completely tax-free.
Interest Rates:
EPF offers a fixed interest rate (around 8.25% per annum in FY 2024-25), which is set by the government and is subject to annual changes.
PPF offers a slightly lower interest rate of 7.1% per annum, but it has the advantage of tax-free interest, making it a stable long-term option.
Accessibility:
EPF is only accessible to employees and comes with certain restrictions. For instance, you cannot withdraw EPF before completing 5 years of continuous service, unless under special circumstances (like unemployment or major medical expenses).
PPF is more flexible in terms of eligibility and withdrawal. After 6 years, partial withdrawals are allowed, and loans can be taken against the balance in the account.
Summary of Key Differences Between EPF and PPF
Criteria | EPF | PPF |
Eligibility | Salaried employees in India (private sector, public sector) | All Indian citizens, including salaried, self-employed, and minors |
Contribution Limits | Up to 12% of basic salary (matched by employer) | ₹1.5 lakh per annum (maximum contribution) |
Interest Rate | 8.25% p.a. (as of FY 2024-25) | 7.1% p.a. |
Tax Benefits | Tax-deductible under Section 80C (old tax regime); tax-free interest up to ₹2.5 lakh | Tax-deductible under Section 80C (old tax regime); tax-free interest and maturity amount |
Taxation on Interest | Taxable if interest exceeds ₹2.5 lakh | Tax-free |
Taxation on Maturity | Tax-free under EEE (Exempt-Exempt-Exempt) | Tax-free under EEE |
Employer Contribution | Yes (equal contribution by employer) | No employer contribution |
Withdrawal Restrictions | Cannot withdraw before 5 years of continuous service unless under special conditions | Partial withdrawals allowed after 6 years |
Access to Funds | Limited to employees; not accessible for self-employed individuals | Open to all Indian citizens, including self-employed |
Eligibility for EPF and PPF
EPF Eligibility:
EPF is available only to salaried employees in India. Any employee working in an organization with more than 20 employees must be enrolled under EPF.
Employees in the private sector who contribute to the EPF scheme are eligible. Self-employed individuals and freelancers cannot open an EPF account.
PPF Eligibility:
PPF is open to all Indian citizens, regardless of their employment status. Salaried individuals, self-employed individuals, and even minors can open a PPF account.
Non-Resident Indians (NRIs) cannot open a new PPF account, but they can continue with existing accounts if they return to India.
Tax Benefits Under the New Tax Regime for FY 2025-26
Under the new tax regime for FY 2025-26, tax deductions under Section 80C, which previously applied to investments like EPF and PPF, are no longer available. This means that taxpayers opting for the new tax regime cannot claim deductions for contributions made to these accounts.
However, the key tax benefits that make PPF and EPF attractive are still in place in terms of tax-free interest and maturity amounts under the Exempt-Exempt-Exempt (EEE) scheme.
EPF:
Employee contributions remain tax-free under EPF. Employer contributions to EPF remain tax-free, provided total PF contributions (including NPS) do not exceed ₹7.5 lakh per annum.
Interest earned on the contributions is tax-free, up to ₹2.5 lakh. Beyond this limit, it is taxable as per your income tax slab.
PPF:
PPF continues to enjoy the tax-free status on interest and maturity amounts. Even though deductions under Section 80C are not available under the new tax regime, PPF remains a valuable investment option because the interest earned is entirely tax-free.
Is EPF Deduction Available in the New Tax Regime for FY 2025-26?
No, EPF deductions are not available under the new tax regime for FY 2025-26. As the new regime eliminates all Section 80C deductions, taxpayers opting for this regime cannot claim deductions for EPF contributions.
Even though the employer’s contribution to EPF and the interest earned on the EPF are still tax-free (within specified limits), the initial contribution made by the employee is no longer deductible. This is a significant consideration for taxpayers deciding whether to stick with the new tax regime or revert to the old tax regime.
Is PPF Deduction Available in the New Tax Regime for FY 2025-26?
Similar to EPF, PPF contributions are not eligible for tax deductions under the new tax regime for FY 2025-26. However, the interest earned on PPF is still tax-free, and the maturity amount is also exempt from tax under the Exempt-Exempt-Exempt (EEE) system.
Though you lose the Section 80C deduction for contributions, PPF remains a powerful savings tool due to its tax-free growth over the long term, especially for those seeking a risk-free, stable investment.
Interest Rates and Their Impact on Tax Savings in FY 2025-26
EPF Interest Rate:
EPF offers a fixed interest rate of 8.25% per annum (as of FY 2024-25), which is set by the government and is subject to periodic revisions. While the interest rate is higher than PPF, it is taxable if the total interest earned exceeds ₹2.5 lakh in a financial year.
PPF Interest Rate:
PPF offers a slightly lower interest rate of 7.1% per annum. However, the tax-free interest and tax-free maturity amount make PPF a highly attractive long-term investment, especially when compared to other taxable savings options.
TDS Rules and Amendments for FY 2025-26
TDS on EPF Interest:
For EPF, TDS will be deducted if the interest earned exceeds ₹5,000 for resident Indians. The TDS rate is 10% if the account is linked with a valid PAN, or 20% if not linked with a PAN. For non-residents, there is no threshold, and the TDS rate is 30%.
TDS on PPF Interest:
PPF interest is not subject to TDS as it is tax-free. Since PPF is a government-backed scheme with tax-free returns, no TDS is levied on the interest, making it an attractive option for tax-conscious individuals.
TDS Thresholds for Senior Citizens in FY 2025-26:
For senior citizens, the threshold for TDS on interest income from fixed deposits and recurring deposits has been raised to ₹1 lakh per annum, an increase from the previous ₹50,000 threshold. This means senior citizens will not have TDS deducted unless their interest income exceeds ₹1 lakh.
Which is Better for Tax Savings: EPF or PPF for FY 2025-26?
When deciding between EPF and PPF for tax savings in FY 2025-26, several factors must be considered:
EPF is ideal for salaried individuals due to the employer’s contribution, which can significantly increase the total amount invested. However, PPF remains more tax-efficient because it is tax-free and accessible to a wider range of individuals (including the self-employed).
If you are a salaried individual with access to EPF, and you are seeking long-term growth with employer contributions, EPF may still be a more lucrative option, provided you are aware of the tax implications on interest earned beyond ₹2.5 lakh.
PPF is a flexible and safe option with tax-free interest, especially suitable for those looking for a stable, long-term investment that does not require regular contributions from an employer.
Conclusion
Both EPF and PPF offer unique benefits and cater to different types of savers. Under the new tax regime for FY 2025-26, the deduction benefits for both schemes are no longer available, but the tax-free interest and maturity amounts continue to make them valuable tools for long-term tax savings. EPF is an excellent option for salaried employees due to the employer’s contribution, while PPF remains a versatile, tax-efficient investment for individuals across various professions. Ultimately, your choice will depend on your income type, tax preferences, and long-term financial goals.
Frequently Asked Question (FAQs)
Q1. Can I contribute to both EPF and PPF for tax savings in FY 2025-26?
Yes, you can contribute to both EPF and PPF for tax savings in FY 2025-26. However, under the new tax regime, the tax benefits available for contributions under Section 80C, which covers both EPF and PPF, are not available. This means while you can contribute to both accounts, you will not be able to claim deductions for these contributions under the new regime. Despite this, both EPF and PPF still offer significant benefits such as tax-free interest and maturity amounts. Therefore, the decision should be based on your specific financial goals and preferences, rather than the tax deductions available.
Q2. How does the new TDS rule affect EPF interest in FY 2025-26?
Under the new TDS rules for FY 2025-26, EPF interest is subject to TDS if the interest earned exceeds ₹5,000 in a financial year. The TDS rate is 10% if the PF account is linked with a valid PAN. If it is not linked to a PAN, the TDS rate increases to 20%. This is a significant change for those who earn high interest on their EPF accounts. Additionally, the interest earned on contributions exceeding ₹2.5 lakh will be taxable. Therefore, it is essential to keep track of the interest accumulated and ensure your PAN is linked to avoid higher TDS deductions.
Q3. What is the maximum contribution limit for EPF and PPF in FY 2025-26?
EPF: The maximum contribution limit for EPF is 12% of the basic salary of the employee, which is matched by an equal contribution from the employer. In total, both the employee and employer can contribute up to 24% of the basic salary into the EPF account. However, if combined contributions to EPF and NPS exceed ₹7.5 lakh in a year, the employer's contribution becomes taxable.
PPF: The maximum annual contribution to a PPF account is ₹1.5 lakh. This limit applies to the total contribution made by an individual and their family members to one or more PPF accounts. This is the threshold for claiming tax deductions under Section 80C.
Q4. Are PPF contributions tax-deductible under the new tax regime for FY 2025-26?
No, PPF contributions are not tax-deductible under the new tax regime for FY 2025-26. The new tax regime eliminates the benefits of tax deductions under Section 80C, which includes deductions for contributions to PPF. However, the interest earned on PPF remains tax-free, and the maturity amount is also tax-free under the Exempt-Exempt-Exempt (EEE) scheme, making it a valuable long-term investment option despite the lack of deductions.
Q5. Does EPF provide better returns than PPF in FY 2025-26?
EPF generally offers higher returns than PPF. As of FY 2024-25, the interest rate on EPF is around 8.25%, while the interest rate on PPF is 7.1%. The EPF returns are based on government-set rates and are subject to change, whereas PPF offers a fixed interest rate for its term. However, EPF returns may be subject to tax if the interest exceeds ₹2.5 lakh annually, while PPF interest is tax-free. Hence, if you are looking for tax-free interest, PPF might be a better choice, but if you are looking for potentially higher returns and are contributing as a salaried employee, EPF may provide better returns.
Q6. Is PPF a better option for tax savings in FY 2025-26 under the new regime?
While PPF may not provide the same deduction benefits under the new tax regime, it is still an attractive option for tax savings in the long run due to its tax-free interest and tax-free maturity amount. Even without the deductions under Section 80C, PPF offers a secure, risk-free return on investment, which can be particularly appealing to conservative investors. If your primary goal is to save taxes on interest income and ensure long-term wealth accumulation, PPF remains a good choice under the new tax regime.
Q7. What are the key differences in TDS rules for EPF and PPF for FY 2025-26?
EPF TDS: TDS on EPF interest is applicable if the interest exceeds ₹5,000 in a year. The TDS rate is 10% if the EPF account is linked with a valid PAN; otherwise, the rate increases to 20%.
PPF TDS: PPF interest is not subject to TDS as it is completely tax-free under the Exempt-Exempt-Exempt (EEE) scheme. Therefore, there are no TDS deductions on interest earned from PPF.
The main difference is that EPF attracts TDS on interest if it crosses the specified limit, while PPF remains unaffected by TDS.
Q8. How is the interest on EPF taxed under the new TDS rules in FY 2025-26?
Under the new TDS rules for FY 2025-26, the interest earned on EPF is taxable if it exceeds ₹2.5 lakh in a financial year. If the interest amount surpasses this limit, it is taxed according to the individual’s income tax slab. Additionally, if the EPF account has more than ₹5,000 in interest income, TDS will be deducted at 10% (if PAN is linked) or 20% (if PAN is not linked). If your EPF account is subject to TDS, ensure your PAN is linked to avoid higher deductions.
Q9. Can EPF withdrawals before 5 years be tax-free for FY 2025-26?
No, EPF withdrawals before completing 5 years of continuous service are not tax-free under the new TDS rules. If an individual withdraws EPF before completing the 5-year requirement, the entire amount, including the employer’s contribution and interest, will be subject to tax. The employer’s contribution is also subject to TDS if withdrawn prematurely, and the tax will be deducted at the applicable rates.
Q10. Are EPF and PPF considered EEE for tax purposes in FY 2025-26?
Yes, both EPF and PPF are considered EEE (Exempt-Exempt-Exempt) for tax purposes in FY 2025-26. This means that:
The principal contribution to both EPF and PPF is tax-free.
The interest earned on both EPF and PPF is tax-free.
The maturity amount is tax-free.
However, the new tax regime has eliminated the deduction benefits under Section 80C for both schemes.
Q11. What happens if my PPF interest exceeds the ₹1.5 lakh limit in FY 2025-26?
If your PPF interest exceeds the ₹1.5 lakh limit in FY 2025-26, you will still not face any tax on the interest or the maturity amount, as PPF interest is tax-free. The ₹1.5 lakh limit refers to the total annual contribution that can be made into your PPF account and does not apply to the interest accrued. Hence, no tax will be levied on the interest even if it exceeds this amount, making PPF an attractive option for long-term savings.
Q12. Should I opt for EPF or PPF based on my salary structure in FY 2025-26?
If you are a salaried individual and your employer offers EPF, it may be a good idea to contribute to EPF, especially as it comes with the advantage of employer contributions. EPF can result in a higher total contribution due to employer matching, which can help grow your savings faster. However, if you are looking for more flexibility and want a tax-free interest return on your savings, PPF might be the better choice. PPF also caters to a wider range of individuals, including the self-employed. Ultimately, the choice should depend on your financial goals, your employer’s contributions, and your tax strategy for the year.
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