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Voluntary Provident Fund

Voluntary provident fund (VPF) is a non-mandatory, voluntary contribution made by an employee into the EPF or employee’s provident fund. 12% of the employee’s contribution is added to the fund account and the voluntary addition is beyond the fixed percentage. As the provident fund is considered to be one of the most secure avenues for retirement, the surplus inclusion from basic salary and dearness allowance to VPF is widely beneficial.

Benefits of Voluntary Provident Fund India

In a simplified manner, the VPF is an extended version of EPF. It is only available for salaried people receiving monthly income through a certain salary amount. Needless to say, these voluntary provident fund benefits provide the employees with unmatched return rates, saving them from financial exigency.

Safe Long-term Investment Tool

This provident fund scheme is a safe option as Government of India manages the scheme. Being one of the most trustworthy mediums minimising the risk, it is proven viable as a long-term investment plan.

Tax Savings

While accounting for tax, your contribution to the voluntary provident fund is entitled to the deduction. Income Tax deduction up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961 is applicable. The amount of income received from interest is not accounted for tax and the base interest rate must not surpass 9.50%. Voluntary provident fund tax benefit is on the entire amount, but the account is taxable, if withdrawn before completing five years.

Easy VPF Investment method

Investing in the voluntary provident fund has been made because there is no need to visit post office every now and then. With easy access to voluntary provident fund online, you can finish the task through the office’s account section. Until you decide to change your workplace, you can stay relaxed and keep investing. You also wouldn’t need to worry after changing your job because the provident fund account is simply transferred accessing a single UAN of EPFO.

Smooth Withdrawal Facility

Voluntary provident fund plan offers partial withdrawal, however there is a lock-in period of 5 years. If you withdraw the fund before five years, the maturity amount becomes taxable. If you retire or resign, you can get the entire maturity amount then. However, if the employee passes away suddenly, the nominee receives the accumulated fund of VPF account. Money withdrawal from VPF account can be done at any time and if there is an emergency. You can utilise the withdrawal money for purchasing property or apartment, bearing the cost of son’s or daughter’s higher education and medical expenses for the family and individual self.

Better Returns than PPF

The voluntary provident fund interest rate is the same as the EPF, but keep in mind that the interest rates vary from time to time. The public provident fund rates are revised on a quarterly basis, but the voluntary provident fund returns are revised on yearly basis. Take a look at the table below on VPF interest rates to understand that they score higher than PPF.

YearPPF Interest RatesVPF Interest Rates
2013-20148.7%8.75%
2014-20158.7%8.75%
2015-20168.7%8.8%
2016-20178%-8.1%8.8%
2017-20187.6%-8%8.55%

VPF Calculator

If you wish to invest in the long term saving investment plan, it is wise to calculate the final fund value beforehand. The online calculator can ease the calculation process and enable you to make an informed decision about vesting money. Take a look at the main factors of VPF calculator for making a solid strategy,

  • Percentage of salary contributed to the voluntary provident fund
  • Interest rate
  • Present EPF balance
  • Base monthly salary
  • Monthly addition to EPF account

Eligibility criteria for VPF

As voluntary provident fund scheme is considered to be an extension of the EPF scheme, this voluntary PF scheme is applicable to salaried individuals exclusively, who get their monthly pay via a pre-decided salary account. However, for people working in the unorganized sectors, PPF or Public Provident Fund account at a post office or local bank is a viable means.

VPF Interest Rates

Each financial year, the VPF interest rates are decided by the Indian government. For example, for the year 2014-15, the interest rate for voluntary provident fund was decided to be 8.75%. This impressive interest rate, along with the fact that accumulated amount in VPF is eligible for tax deduction under section 80C of the Income Tax Act, 1961, and therefore a lot more Indians are now considering VPF investment as a viable option.

VPF Registration Form

While there is no registration form for Voluntary Provident Fund, an individual who wants to avail the benefits of VPS needs to inform his/her HR or payroll team to convert his/her EPF to VPF. Here are a few simple steps that elaborate how this change happens-

  • As an employee, you fill out the KYC form, sign it and send the same to the payroll or HR department of your company.
  • Once the department receives your form, they confirm the accuracy of the information furnished by you and change your basic EPF account to voluntary PF account, as requested. After that, the decided percentage which has been mentioned by you shall be deducted from your monthly salary as contribution to VPF.

Tax Benefits from VPF Scheme

VPF is given considerable credit and importance when effective investment tools are discussed in India. As per the latest regulations, an investor is allowed a tax break of up to Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961. But it is important to note that all contributions to the Voluntary Provident Fund are part of the employee’s pre-tax income. Another vital factor to be kept in mind is that the income received as interest from this account is not taxed. However, it will be taxed if the decided interest rate exceeds or equals 9.50%.

Documents Required to open a VPF account

For starters, you should be registered with employee provident fund and then you will be eligible for VPF. Then produce the mentioned documents,

  • MOF - Company registration certificate
  • Detailed company profile
  • Forms 49 and 24
  • Business registration certificate
  • Memorandum and articles of association, only if the organisation is an ‘Sdn Bhd’ You can inquire the employer further about other documents to be furnished while submitting the request for opening VPF account.

Rules and Regulations for VPF account

While VPF is a robust investment tool as established by the Government, there are certain rules and regulations that are laid down for the smooth functioning of the system. They are as follows-

  • An employee is allowed to contribute 100% of his/her Basic Salary and Dearness Allowance towards the VPF Account. However, this is a stark contrast with EPF account, wherein the individual can give only a maximum of 12% of their basic salary.
  • Individuals who are salaried employees or are working for organizations that are recognized by the Employees’ Provident Fund Organization of India, can open a VPF Account. On the other hand, any self-employed individual who is working in the unorganized sectors cannot open a VPF account.
  • It is not mandatory for employers to contribute to their employees’ VPF portfolio.
  • It is possible to open a VPF account at any time of the financial year. Nonetheless, any investment in this account cannot be stopped before the base tenure of 5 years is completed.
  • It’s extremely important to note that VPF account interest rates are determined at the beginning of the financial year by the Government. The rates could be incremental or decremental, when compared with the previous years.
  • Individuals can make partial withdrawals from their VPF accounts which is allowed in the form of loans. In case the withdrawal happens before the maturity tenure or when it has completed 5 years, then accumulated maturity amount shall be taxed.
  • At the time of retirement or resignation, the full maturity amount is payable. In case of resignation, this amount can be transferred from one employer to another, only in the case of EPF. However, in case of untimely death of the account holder, the assigned nominee/legal heir gets the accumulated balance in the voluntary PF account.

VPF Withdrawal Process

As mentioned earlier, a medical emergency can be efficiently dodged by building financially protected future from now. There may be several reasons behind making the withdrawal at the hour of need. That’s why; keep in mind that VPF withdrawal is done by filing Form-31 and writing a request letter. Form-31 is the EPF fund application which the employee can acquire from the finance/HR team of the organisation or government portal. You can also visit the EPFO website for downloading the form. Additionally, the relevant documents are required to be submitted and the details must include employee information, EPF account number and bank details (for crediting the maturity amount) and postal address. Provide a cancelled cheque with the necessary documents. Do not forget to get the document attested by the concerned official.

Difference between PF, EPF and VPF

There are stark differences between PF, EPF and VPF. These can be summarised as follows-

AspectPFEPFVPF
Holding the accountAny Indian individualOnly employed Indian individualOnly employed Indian individual
Contribution of employeeNoneOnly upto 12%Upto 100%
Contribution of employerNoneOnly upto 12%Not mandatory
Interest Rate(p.a)8%8.75%8.75%
Tax on maturityN.AN.AN.A
Benefit from tax (p.a)Upto ₹1.5 lakhUpto ₹1.5 lakhUpto ₹1.5 lakh
Tenure of investment15 yearsResignation/RetirementResignation/Retirement
Loan facility50% withdrawal after 6 yearsWith partial withdrawalsWith partial withdrawals

FAQs on Voluntary Provident Fund

Can I have both EPF and PPF account?

Yes, as an individual, you can have both EPF and PPF accounts

Can PF be withdrawn?

Yes, PF can be withdrawn with the help of a composite form

Can we contribute more than 12% in EPF?

Yes, you can contribute more than 12% in EPF and it would be called Voluntary Provident Fund (VPF)

How are VPF and EPF different from each other?

A VPF account is for salaried personnel who want to contribute more than 12%, while in an EPF only 12% is contributed.

How can I increase my EPF contribution?

While the basic contribution to EPF is 12%, an individual can speak to the employer to increase the EPF contribution.

How can I invest in PPF?

To make an investment in PPF, you need to open a PPF account and then can make a deposit either by cash or cheque.

How do I check my VPF balance?

To check your VPF balance, you can simply call on 011 22 901 406.

How much amount can I withdraw as loan against my VPF account?

While there is no amount pre-decided for withdrawal, a withdrawal can be made only after 5 years.

Is employer contribution to PF comes under 80c?

Employer’s contribution is exempt from tax under 80C of the Income Tax Act, 1961.

Is PF taxable on retirement?

No, the interest earned on PF is not taxable on retirement.

Is VPF better than PPF?

Yes, VPF is a better investment as it offers a higher rate of interest as compared to PPF.

Is VPF exempted from tax?

The contribution to a maximum of Rs. 1.5 lakhs is deductible under Section 80C of the Income Tax Act, 1961. However, the proceeds of VPF upon maturity is also tax free.

Is withdrawal from EPF taxable?

There are certain cases where premature withdrawal of EPF is non-taxable. Else, according to the income tax rules, withdrawals shall be taxed.

What is the difference between PPF and VPF?

The major difference between a VPF and PPF account is that a VPF account can only be opened by a salaried employee, whereas a PPF account can be opened by any individual who might be self-employed or is working in the unorganized sector. Also, the interest rate offered by VPF account is 8.75%, whereas a PPF account offers 8% on your savings.

What is the interest rate on VPF?

The interest rate on VPF is 8.75%

What is the maximum and minimum amount that can be invested in VPF?

There is no defined limit on VPF contributions. However, the employer makes no contribution here.

What is the rate of interest on PPF?

The rate of interest on PPF is 8%

What is Vol provident fund?

VPF or voluntary provident is the fund contribution from the employee on a voluntary basis towards his provident fund account. This is done to achieve major life goals like saving up for retirement and hence, the contribution is beyond the 12% of contribution by an employee towards his EPF.

What is VPF salary?

VPF acts like an extension of EPF, where the voluntary contribution from an individual is 100%, as opposed to 12% in an EPF account.

When can I withdraw my VPF?

Amounts from VPF can be withdrawn anytime. However, any amounts withdrawn before 5 years shall be completely taxable.

Who are ideal candidates for a VPF account?

VPF is a good option for individuals who are risk averse and are looking for a long term investment option so as to create a substantial retirement fund.

Who is eligible to open a VPF account?

All employees of an organization who are on the company’s payroll are eligible to open a VPF account.

Will my VPF account get affected if I change job?

No, a job change will not affect your VPF account as it is linked with your Aadhaar card.