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The Voluntary Provident Fund (VPF) is a popular investment among salaried individuals looking to secure their financial future. It is a government-backed savings scheme with low risks and high returns.
What is VPF?
VPF serves as an extension of the Employee Provident Fund (EPF). It allows employees to voluntarily contribute additional funds to their Provident Fund (PF) account beyond the mandatory 12 per cent contribution towards EPF. Employees can invest up to 100 per cent of their basic salary and dearness allowance (DA) in the VPF.
Key features of VPF?
Attractive interest rates
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A key advantage of VPF is its competitive interest rate, which is determined by the government and is usually aligned with the EPF interest rate. The interest earned on VPF is at the same rate as the EPF for FY 2024-25 is at 8.25 per cent per annum. This rate is reviewed annually by the Central Board of Trustees of the Employees' Provident Fund Organisation (EPFO) in consultation with the Finance Ministry.
Tax benefits
Contributions made towards VPF are eligible for tax deductions under Section 80C of the Income Tax Act, up to a maximum of Rs 1,50,000 per year. Additionally, the interest earned on VPF is tax-exempt, allowing the corpus to grow tax-free over time.
Flexibility in contributions
Unlike the EPF, which has a fixed contribution rate, VPF offers flexibility. Employees can invest up to 100 per cent of their basic salary and dearness allowance in VPF, allowing them to customise their contributions based on individual financial goals.
Loan facility
Depending on the conditions, employees may have the option to avail loans against their VPF balance, providing liquidity in times of need.
How to opt for the VPF?
Contact the HR Department:
Inform your organisation's HR department about your intention to opt for the VPF scheme. They will guide you on the specific procedures and requirements applicable in your organisation.
Submit the necessary documents:
Obtain and fill out the required forms provided by your HR department. These forms usually include a declaration form for VPF contributions.
Along with the completed forms, submit the necessary documents such as:
A copy of your PAN card.
Bank account details for crediting the VPF withdrawals or interest, if required.
Choose the contribution percentage:
Decide the percentage of your salary that you wish to contribute to the VPF. This amount should be over and above your mandatory Employee Provident Fund (EPF) contribution.
Ensure that the chosen percentage does not exceed your basic salary and dearness allowance, as per the regulations.
Start contributing:
Once your application is processed, your HR department will start deducting the chosen contribution percentage from your salary.
This amount will be deposited into your VPF account along with your regular EPF contributions.
Withdrawal rules
The Voluntary Provident Fund (VPF) requires a minimum lock-in period of 5 years to avail of full tax benefits. This fund, being an extension of the Employee Provident Fund (EPF), allows individuals to withdraw their accumulated amount under specific circumstances such as retirement, unemployment for more than two months, or to cover expenses related to loan repayment, purchasing or constructing a residential property, education of a child, marriage of self or a dependent, and medical emergencies.
