Voluntary Provident Fund

What is Voluntary Provident Fund (VPF)?

Voluntary Provident Fund (VPF) is a savings scheme offered by employers in India under the Employee Provident Fund Organisation (EPFO). It allows salaried employees to voluntarily contribute a portion of their salary (over and above the mandatory 12% contribution under the Employee Provident Fund or EPF) into a provident fund account. VPF is not mandatory but provides an excellent way for employees to save for retirement while enjoying additional benefits.

Key Features of VPF

• Voluntary Contributions Employees can contribute up to 100% of their basic salary and dearness allowance, exceeding the mandatory EPF contribution.

• High-Interest Rate The interest rate for VPF is determined annually by the EPFO and is typically higher than traditional savings instruments. For the fiscal year 2023-24, the interest rate is 8.15%.

• Tax Benefits Contributions are tax-deductible under Section 80C of the Income Tax Act, and the maturity amount is tax-free if the account is maintained for at least five years.

• Long-Term Savings VPF is designed for long-term financial security, offering compounded returns and a significant corpus at retirement.

• Withdrawal Rules

  • Full withdrawal is allowed upon resignation, retirement, or after five continuous years of service (tax-free).

  • Partial withdrawals are permitted for specific reasons, such as medical emergencies, higher education, or marriage.

Benefits of VPF

• Higher Returns Provides higher interest compared to savings accounts and fixed deposits, ensuring better wealth accumulation.

• Simple to Manage Contributions are directly deducted from the salary, making it convenient and hassle-free.

• Secure Investment Managed by EPFO under the Government of India, VPF is a safe and stable investment option.

• Loan Facility Employees can avail loans against their VPF balance to meet financial emergencies.

• Tax Efficiency Classified under the EEE (Exempt-Exempt-Exempt) category, VPF offers tax exemption on contributions, interest, and withdrawals after five years.

Eligibility Criteria

• Salaried Employee Must be a salaried employee working in an organization registered under the EPFO.

• EPF Membership The individual must already be contributing to the EPF scheme.

• Employer Consent The employer must permit voluntary contributions to the provident fund.

Documents Required for VPF

• Form 10: To open a VPF account.

• Form 15G/15H: For exemption from tax deduction on interest.

• Identity Proof: Aadhaar, PAN card, passport, or driver’s license.

• Address Proof: Aadhaar, utility bills, or passport.

• Proof of Employment: Salary slip or appointment letter.

• Bank Details: Bank account number and IFSC code.

Contribution Limit and Interest Rate

• Contribution Limit: Up to 100% of basic salary and dearness allowance.

• Interest Rate: 8.15% for 2023-24. Historically, the rate has been between 8.15% and 8.65% over the past five years.

Tax Benefits of VPF

• Tax Deduction: Contributions qualify under Section 80C (up to ₹1.5 lakh annually).

• Tax-Free Interest: Interest earned is exempt from tax under certain conditions.

• Tax-Free Withdrawals: The maturity amount, including principal and interest, is tax-free after five years.

Differences Between PF, EPF, and VPF

Withdrawal Process

• Steps to Withdraw:

  • Fill out Form 31 (available online or through your employer).

  • Attach required documents, including ID proof and bank details.

  • Submit the form to your employer for verification.

  • The employer forwards the request to EPFO for processing.

• Processing Time: Typically takes 2-3 weeks.

• Premature Withdrawals: Subject to taxation unless for specified reasons like medical or educational expenses.

Why Consider VPF?

VPF is a practical choice for salaried employees seeking long-term financial security. Its benefits, including higher returns, tax savings, and safety, make it a preferred option for building a retirement corpus or addressing future financial needs.