Voluntary Provident Fund: Things You Missed

What is VPF?

Generating a substantial saving fund to take care of life after retirement continues to be the aim of every salaried employee. Like EPF (Employee Provident Fund), VPF equally plays a major role in assisting a salaried employee with his savings for retirement. VPF means Voluntary Provident Fund in which the subscribers can contribute more than 12% of their basic salary towards this tax savings tool. VPF is one of the most preferred savings schemes for risk averse, salaried people because VPF interest rates are high – currently at 8.65%. Any salaried employee enrolled with the EPF (Employees Provident Fund) is eligible to open a VPF account. In addition, employees can avail a loan against the amount accumulated in the VPF account.

As with the Provident Fund, all withdrawals from the Voluntary Provident Fund after 5 years of continuous contributions is completely tax free. In case, the employee wishes to make a withdrawal within the first five years of enrolment in the scheme, the interest earned over the deposits will be subject to tax.

Difference between VPF and PPF;

PPF stands for Public Provident Fund and VPF for Voluntary Provident Fund. Both are supported by the Government of India to help you save for your retirement. However, there are certain significant differences, between the two. Take a look at the table below;

VPF (Voluntary Provident Fund) PPF (Public Provident Fund)
Meant only for salaried employees Serves Self-employed professionals too
Interest offered is similar to EPF @ 8.75% Interest offered if @8.7%
Contributions to VPF qualifies for tax deduction Contributions to PPF are free from taxes
Amount cannot be withdrawn before maturity period which is 15 years Amount can be withdrawn any time. If withdrawn before 5 years, the amount is taxed.

 

The Voluntary Provident Fund Calculator is a simplified online tool that  helps the investor with the basic knowledge of how much money must be periodically invested to attain the planned target pay out. The standard VPF calculator utilizes the following input points.

  • Base Monthly Salary
  • % of Salary to be Contributed to VPF Account
  • Monthly Contribution to Employee Provident Fund (EPF)
  • Employer’s Contribution to your EPF Account
  • Current EPF Balance
  • Applicable Interest Rate

The Voluntary PF Interest rate is presently fixed at 8.75 % P. A. The commissioner shall credit interest to the account of each member at rates defined by the Central Government in consultation with the Central Board.

Why choose Voluntary PF?

Voluntary PF comes with many attractive benefits;

Safe Investment Option-

  • Simple to Apply
  • High Rate of Interest-
  • Potent Pension Fund-
  • Tax Savings-
  • Easily Transferable

 

Investments under the Voluntary Provident Fund scheme are quite popular, and one of the biggest reasons for this is the fact that the money accumulated in the Voluntary Provident Fund account can be withdrawn at any time. However, the VPF amount can be withdrawn only under very specific reasons / requirements as;

  • Medical treatments involving the account holder and/or his/her family members.
  • Cost intensive events such as higher education and marriage.
  • For the construction/purchase of house/plot of land.
  • Home loan repayments.

 

Some Key Factors about Voluntary PF;

  • Once employee has opted for VPF, he or she cannot discontinue the investment mid-year.
  • The responsibility of getting the VPF enrolment falls on the employee who must request their employer.
  • Most employers would like their employees to start their VPF at the start of the financial year.
  • The risk of interest rates falling is higher with provident fund investment as the interest rates are subject to change every year.
  • There is an income tax exemption at all levels namely contribution, interest on contribution and withdrawal.
  • Employees get tax exemption under section 80C to the extent of contribution during the financial year subject to limit specified in the Income Tax Act (Rs. 1, 50,000 per year).
  • If an employee withdraws money within the first 5 years of service, then the interest becomes taxable.
  • The maturity value is paid only when you either retire or resign from your job. It can also be transferred from your current company to your new company, in case you want to change your job.

Voluntary Provident Fund – Frequently Asked Questions

  1. Who are ideal candidates for a VPF account?

A   VPF accounts are best suited for people who are nearing retirement and/or are looking out for a robust, safe and scalable pension fund option.

  1. What is the maximum and minimum amount that can be invested in VPF?
  2. When it comes to investment, there isn’t any maximum or minimum limit.
  3. How much amount can I withdraw as loan against my VPF account?
  4. Partial withdrawals are possible as also the complete withdrawal of the monies accumulated in the VPF account.
  5. What is a VPF account?
  6. The Voluntary Provident Fund account is another investment option that helps a salaried individual to save more towards their retirement, apart from the mandatory deduction of 12% of the basic salary
  7. What is the prevailing rate of interest on your VPF account?
  8. The prevailing rate of interest is 8.75%