PensionBox Blogs
Voluntary Provident Fund
Remy Sharp
Pranat Modi
July 27, 2022

All That You Need to Know About VPF

A Voluntary Provident Fund (VPF), an extension of the EPF (Employee Provident Fund), allows employees to make voluntary contributions to their provident fund account. This contribution does not include the 12% contribution to the Employee Provident Fund. The Voluntary Provident Fund, also known as the Voluntary Retirement Scheme, is overseen by the Government of India. Voluntary Provident Fund permits an employee to make a maximum contribution of up to 100% of their basic salary and Dearness Allowance. The interest rates of both VPF and EPF are the same.

The basic characteristics of VPF are as follows:

  • The Voluntary Provident Fund is a supplement to the Employee Provident Fund.
  • It is not compulsory to contribute to the Voluntary Provident Fund.
  • It can continue to function until an employee retires or resigns.
  • The maturity amount for the Voluntary Provident Fund is determined by the amount invested, which is determined by the employee's discretion.
  • The government of India determines the interest rate for the Voluntary Provident Fund.
  • It has a 5-year lock-in period, which means that once you contribute to the Voluntary Provident Fund, you cannot withdraw before the 5-year term is through.

Advantages of VPF

  • Employees can benefit from a contribution exemption, a principal exemption, and an interest exemption through the Voluntary Provident Fund. This qualifies the Voluntary Provident Fund as a tax-saving strategy.
  • VPF is risk-free and secure when compared to other long-term investment programmes offered by private enterprises since it is maintained by the government.
  • The procedure for opening a Voluntary Provident Fund account is very simple. To open a Voluntary Provident Fund account, employees must speak with their financial department or HR manager. Fill up the documentation as required.
  • VPF offers a significantly higher rate of interest when compared to other investment options offered by private enterprises. The current VPF interest rate is 8.51 percent this year.
  • If a worker changes jobs or relocates themselves, their Voluntary Provident Fund can be easily moved from the previous firm to the new one.

Learn Everything Before Proceeding!

Tax Exemption in VPF

The tax exemption provided by the Voluntary Provident Fund is its most distinguishing feature. Tax benefits of up to Rs. 1.5 lakh are available to employees. Furthermore, the interest earned from contributions to the Voluntary Provident Fund is tax deductible. However, If the annual interest rate exceeds 9.50 percent, the case will be different.

Interest Rates in VPF

The interest rate under the Voluntary Provident Fund is set by the Government of India and is changed annually. The Voluntary Provident Fund has an annual interest rate of 8.50 percent for the fiscal year 2019-2020. The previous rate of interest was 8.65 percent. Provident Fund has consistently maintained a greater interest rate than the EPF from fiscal years 2013-2014 to 2019-2020.

Withdrawal Facilities in VPF

The Voluntary Provident Fund allows both full and partial withdrawals (in the form of a loan). A tax is paid on the accrued maturity total if the withdrawal occurs before the minimum term of 5 years. The ultimate maturity amount is paid after the employee resigns or retires. In the event of the account holder's untimely death, their designated nominee receives the accrued cash under VPF. Money can be withdrawn from the Voluntary Provident Fund at any time. So, the Voluntary Provident Fund gives people a reliable way to get money when they need it.

How PensionBox can help?

Salaried employees who have an active EPF account can put money in VPF. As the name suggests, it is a voluntary contribution which is over and above the statutory EPF contribution.

PensionBox helps you to track how your funds allocated towards EPF and other funds are performing. Through our app, you can easily track your retirement savings and figure out how much you need to save to reach your dream retirement goal. Your true ONE-STOP Solution!