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Voluntary Provident Fund (VPF) - Eligibility, Benefits, and Interest Rate

Team AckoFeb 16, 2024

The Voluntary Provident Fund (VPF) is an excellent retirement savings option for employees looking to secure their financial future. With its higher returns, tax benefits, and flexibility in contributions, it offers individuals a reliable way to accumulate a substantial corpus for their post-employment years.

By understanding the eligibility criteria, benefits, and other details associated with the VPF, individuals can make informed decisions and take advantage of this valuable savings scheme.

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Contents

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What is the Voluntary Provident Fund in India?

The Voluntary Provident Fund (VPF) refers to a savings-oriented scheme that empowers employees to enhance their contributions to their provident fund account, enabling them to augment their savings and establish a secure future. 

It functions as an extension of the Employee Provident Fund (EPF) scheme, overseen by the Employees' Provident Fund Organization (EPFO) in India. The EPF scheme primarily focuses on retirement savings, aiding employees in building a corpus for their post-employment years. 

Eligibility Criteria for Voluntary Provident Fund

To be eligible for the Voluntary Provident Fund in India, an individual must meet the following criteria.

  • Be an active member of an organisation that falls under the purview of the EPF scheme.

  • Be a member of the EPF scheme and have an active EPF account.

  • The employer should offer the VPF facility to its employees.

Benefits of the Voluntary Provident Fund

Let's take a closer look at some of the benefits of a Voluntary Provident Fund.

1. Higher returns

One of the key advantages of the VPF is that it offers higher returns compared to other fixed-income investment options. As the VPF is linked to the EPF scheme, the funds are invested in government securities, bonds, and other low-risk instruments. This ensures that the contributions made by employees grow steadily over time, providing them with a substantial corpus at the time of retirement.

2. Tax Benefits

Contributions made towards the VPF are eligible for tax benefits under Income Tax Act (80C). This means that the amount contributed towards the VPF can be deducted from the employee's taxable income, thereby reducing their overall tax liability. Additionally, the interest earned on the VPF is tax-free, making it an attractive investment option for individuals looking to save on taxes.

3. Flexibility in Contribution

Unlike the EPF, which has a fixed contribution rate, the VPF allows flexibility. This provides individuals with the freedom to enhance their savings as per their financial goals and obligations. The higher contribution also leads to an increase in the overall corpus, ensuring a comfortable retirement for employees.

4. Employer Matching

In some cases, employers may choose to match the contributions made by employees towards the VPF. This means that for every rupee contributed by the employee, the employer also contributes an equal amount, effectively doubling the employee's savings. 

How to opt for the Voluntary Provident Fund?

Opting for the Voluntary Provident Fund is a straightforward process. Employees who meet the eligibility criteria can follow these steps to avail themselves of the benefits of the VPF.

  • Contact the HR department: Inform your organisation's HR department about your decision to opt for the VPF scheme.

  • Submit the necessary documents: Fill out the required forms and submit them to the HR department along with the necessary documents, such as a copy of your PAN card and bank account details.

  • Choose the contribution percentage: Decide on the percentage of your salary that you wish to contribute towards the VPF. Remember, this percentage should not exceed your basic salary and dearness allowance.

  • Start contributing: Once your application is processed, your chosen contribution percentage will be deducted from your salary and deposited into your VPF account along with the regular EPF contributions.

VPF Interest Rate

The Indian Government sets and updates the rate of interest for the Voluntary Provident Fund (VPF) on an annual basis. As of the financial year 2023-24, the VPF interest rate stands at 8.15% per annum.

How to check the VPF balance?

Follow these steps to check the VPF balance.

  1. Go to the EPFO's official website.

  2. Navigate to the 'Our Services' section and click on 'For Employees.'

  3. Look for the 'Services' heading and select the 'Member Passbook' option.

  4. Enter your UAN (Universal Account Number) and password, then click on the 'Login' button.

  5. Choose the relevant Member ID associated with your VPF account.

  6. Click on the 'View Passbook' option to access your EPF passbook, which will contain all the information related to your VPF account.

Difference between Employee Provident Fund and Voluntary Provident Fund

The following table highlights the key differences between Employee Provident Fund and Voluntary Provident Fund. 

Aspect

EPF (Employee Provident Fund)

VPF (Voluntary Provident Fund)

Contribution Type

Mandatory

Voluntary

Employee Contribution

Fixed percentage of salary

Additional percentage over mandatory EPF contributions

Contribution Limit

Limited to a certain percentage of salary, as defined by the EPFO

No specific upper limit, but cannot exceed basic salary + DA

Employer Matching

The employer is required to match the employee's contributions, contributing an equal amount to the EPF account.

No mandatory requirement for the employer to match the additional voluntary contributions made by the employee. However, some employers may choose to match the VPF contributions as an additional benefit.

Points to note about Voluntary Provident Fund

Here are some crucial details you should be aware of regarding the Voluntary Provident Fund.

  • VPF interest rate: The VPF interest rate is determined by the government and is usually aligned with the EPF interest rate, providing competitive returns on the contributions made.

  • VPF tax benefits: Contributions towards the VPF are eligible for tax benefits, allowing individuals to reduce their taxable income.

  • VPF tax exemption: The interest earned on the VPF is tax-exempt, providing an additional advantage as the accumulated corpus grows tax-free.

  • VPF contribution limit: There is no specific upper limit for VPF contributions. However, employees cannot contribute more than their basic salary and dearness allowance to the VPF.

  • VPF withdrawal rules: Ideally, upon retirement or resignation, individuals are entitled to receive the complete accumulated amount in their EPF account. Similarly, in the unfortunate event of untimely demise, as per the VPF withdrawal rules of 2020, the funds can be released and disbursed to the nominated beneficiary. Moreover, the VPF regulations permit partial withdrawals from the Voluntary Provident Fund in the form of loans. In certain circumstances, it is also feasible to withdraw the entire accumulated corpus. 

  • VPF lock-in period for taxation: The VPF has a lock-in period of five years. If this is violated, it can have tax repercussions. 

Frequently Asked Questions (FAQs)

Here are some FAQs about the Voluntary Provident Fund in India.

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Can I withdraw funds from my VPF account before retirement?

Yes, you can withdraw funds from your VPF account before retirement. However, it is subject to certain conditions and restrictions. 

Can I continue contributing to the VPF after switching jobs?

Yes, you can continue contributing to the VPF even after switching jobs, provided your new employer offers the VPF facility. You need to inform your new employer about your previous VPF account and provide the necessary details to continue the contributions seamlessly.

Is the interest earned on the VPF taxable?

No, the interest earned on the VPF is exempt from tax. It is one of the significant advantages of the VPF as it allows the corpus to grow tax-free, resulting in higher returns over the long term.

What happens to my VPF account if I change my employment to a company that doesn't offer the VPF facility?

If you change your employment to a company that doesn't offer the VPF facility, you can choose to withdraw the accumulated amount or transfer it to a new account under the new employer's EPF scheme.

Is the VPF limited to salaried employees, or can self-employed individuals contribute to it as well?

The VPF is primarily designed for salaried employees who fall under the purview of the EPF scheme. Self-employed individuals cannot contribute to the VPF directly. 

Can I take a loan against my VPF account?

Yes, you can avail yourself of a loan against your VPF account. The loan amount is usually limited to a certain percentage of your total VPF balance and is subject to the rules and regulations set by the EPFO.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions. 

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