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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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What is Voluntary Provident Fund?
VPF is an optional savings scheme for salaried individuals, which goes around the very popular Employees Provident Fund (EPF). It is operated under government regulations, offering a secure investment avenue with low risks and promising returns.
VPF provides an additional layer of financial security. Read this blog to learn the VPF full form, what VPF is, understand eligibility criteria, explore benefits, and the withdrawal process.
Who Can Opt for VPF?
Let’s understand what VPF means exactly. VPF stands for Voluntary Provident Fund. It allows employees to contribute additional funds to their PF account. This voluntary contribution exceeds the mandatory 12% as marked for the EPF. Employees can contribute up to 100% of their Basic Salary and Dearness Allowance, earning interest at the same rate as the EPF.
Now, a question often asked is, who can opt for VPF? Employers are free to contribute to their employees' VPF, and employees can opt in or out. However, contributions cannot be terminated once committed before completing a minimum tenure of 5 years. The VPF is only available to salaried individuals receiving payments through a designated salary account.
Features & Benefits of VPF (Voluntary Provident Fund)
● Tax Efficiency:
VPF stands out as a tax-efficient investment avenue, falling under the EEE category—exempt on contribution, exempt from the principal, and exempt on interest. This distinctive feature makes it a clear choice for individuals looking to optimise their tax-saving strategies. By allowing tax exemptions across all stages of contribution, principal, and interest.
● Safe Investment Option:
The government manages it and features a fixed interest accrual; VPF is considered a secure and low-risk investment option. The stability and reliability offered by this scheme set it apart from long-term investment alternatives provided by private players. The assurance of government backing enhances the safety of the investment, attracting individuals seeking a secure and dependable avenue for their savings.
● Ease of Application:
Opening a VPF account is a simple process that adds to its appeal. Employees can initiate the process by approaching their HR or Finance team and expressing their intent to contribute additional funds to the VPF. The procedure involves submitting a registration form, and the existing EPF account serves as the conduit for these supplementary VPF contributions.
● High Returns:
Another key advantage of VPF is the attractive interest rate it offers. Currently set at 8.15% per annum, this interest rate provides a competitive edge, especially compared to other long-term investment options. The annual tax exemption on contributions and accrued interest, up to Rs 1.5 lakh under Section 80C, further enhances the overall returns for investors.
● Easy Transfer:
Flexibility is a notable feature of VPF, allowing account holders to transfer their accounts between employers seamlessly. This feature ensures continuity and ease of management, even when individuals change jobs. The ability to transfer the VPF account without complications adds to the overall convenience and accessibility of this investment avenue, making it a versatile choice for individuals navigating career transitions.
How to Open a VPF Account?
To open a VPF account, employees must submit a written request to their employer or HR department, expressing the intention to contribute an additional amount from their salary to the VPF.
Providing personal details and specifying the monthly contribution from the basic salary is essential. It's important to note that once initiated, the investment in VPF must continue within the financial year. While a VPF account can be opened anytime during the financial year, early withdrawals within the initial five years are subject to taxation.
Eligibility for VPF (Voluntary Provident Fund)
The only eligibility for the VPF is that it is open to any salaried individual with an existing EPF account. This voluntary contribution allows employees to invest more beyond the standard 12% of their salary contributed to EPF.
Contribution And Withdrawal in VPF
VPF Contribution
VPF Withdrawal Rules
How To Check The VPF Balance?
Keeping track of your VPF balance is a simple and quick process. Follow these steps to check your VPF balance online:
Read Also: E-Banking: Meaning, Types, Features & Services Explained
Frequently Asked Questions
1. What is a Voluntary Provident Fund (VPF)?
The VPF is a voluntary scheme allowing employees to contribute beyond the mandatory 12% towards their EPF, providing additional savings with government-backed security.
2. Who Can Contribute to a VPF?
Salaried individuals with an existing EPF account are eligible to contribute to a VPF.
3. What is The Difference Between EPF And VPF?
EPF is the mandatory Employees Provident Fund, while VPF is a voluntary extension where employees contribute beyond the mandated 12%.
4. Is There a Limit on VPF Contributions?
There is no maximum limit for VPF contributions; individuals can contribute up to 100% of their monthly income.
5. Are VPF Contributions Tax-Deductible?
VPF contributions up to Rs 1.5 lakh per annum, along with the accrued interest, are exempt from tax under Section 80C.
6. Can I Withdraw From My VPF Before Retirement?
Yes, partial withdrawals and loans are permitted. However, tax implications apply if withdrawn before the mandatory 5-year tenure.
7. Can Self-Employed Individuals Opt for VPF?
No, VPF is available only to salaried individuals with monthly payments through salary accounts.
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