As we approach retirement age, we all want to have enough savings to live a financially secure and comfortable life. The Voluntary Provident Fund (VPF) is a great way to boost your retirement savings with flexibility and control. Unlike Employee Provident Fund (EPF), Voluntary Provident Fund (VPF) is totally voluntary, and employees can invest up to 100% of their basic salary and Dearness Allowance (DA). This article will discuss the benefits of VPF and how it can help you achieve your retirement savings goals.
What is a Voluntary Provident Fund (VPF)?
The Voluntary Provident Fund (VPF), also known as the Voluntary Retirement Fund, is an investment option available to salaried employees in India. It serves as an extension of the Employee Provident Fund (EPF). VPF allowing employees to voluntarily contribute additional funds to their Provident Fund (PF) account beyond the mandatory 12% contribution towards EPF. Employees can invest up to 100% of their Basic Salary and Dearness Allowance (DA) in the VPF.
Benefits of Voluntary Provident Fund (VPF)
The Voluntary Provident Fund (VPF) offers several benefits:
- Flexibility: Employees have the flexibility to decide the percentage of their basic salary to be contributed to VPF, but it should not be more than 100% of the basic salary and DA. This allows customisation 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.
- Safe option for investment: As the extension of EPF, VPF is also government-backed, VPF providing secure and stable option for individuals to invest their hard-earned money. This safety net makes VPF an attractive choice, particularly for risk-averse investors seeking a reliable and trustworthy investment avenue.
- Disciplined savings: With contributions deducted directly from the salary, VPF promotes disciplined savings habits. This helps individuals to save the part of their income consistently.
Additional read: VPF vs PPF
Voluntary Provident Fund (VPF) Interest Rate
The Indian Government decides and annually revises the interest rate for VPF. As of the 2024-25 fiscal year, the VPF interest rate stands at 8.25% per annum.
Who can invest in Voluntary Provident Fund?
Salaried individuals enrolled in EPF have the option to contribute more towards their retirement through the Voluntary Provident Fund (VPF), but only if they receive their salary through a specific salary account.
How to open a VPF account?
- Employees need to request their employer or HR department expressing the desire to open a VPF account and allocate an additional amount from their salary.
- Employees are required to give personal details along with the specified monthly contribution amount from their basic salary towards the VPF account.
- A VPF account can be opened at any time.
Documents required for opening a VPF account
To open a Voluntary Provident Fund (VPF) account, you typically need the following documents:
- Registration certificate of his/her company with the Ministry of Finance (MoF).
- Business Registration Certificate (Form 9 & Form D).
- Submit Form 24 and Form 29.
- For companies registered in Malaysia as 'Sdn Bhd', Memorandum of Association (MOA) and Articles of Association (AOA) must be summited.
- Additional documents as per government regulations.
Additional read: PF withdrawal rules
Voluntary provident fund withdrawal process
The fund allows partial and complete withdrawals. If withdrawn before 5 years, tax applies to the accumulated amount. Upon resignation or retirement, you will be receiving the full maturity amount which is tax free. In case of the account holder's untimely death, the nominee receives the accumulated fund in the VPF account.
Apart from these, you can also withdraw from the VPF account in case of a financial emergency.
- Medical expenses for the depositor or his/her family members.
- Expenses like children's education or marriage.
- Purchase of a residential property or a purchase/construction of house.
Tax benefits available under VPF
Investing in the Voluntary Provident Fund (VPF) not only helps individuals secure their financial future but also provides attractive tax benefits. Contributions to VPF qualify for a deduction under Section 80C of the Income Tax Act, offering a maximum annual deduction of Rs. 1.5 lakh. With an Exempt-Exempt-Exempt (EEE) tax status, both the interest earned, and the maturity amount are tax-free.
But if the investment is withdrawn within 5 years, they are liable to tax.
Voluntary Provident Fund (VPF) contribution limit
There are no set maximum or minimum contribution limits for VPF annually. Individuals have the flexibility to contribute up to 100% of their monthly income (including salary and dearness allowance) towards VPF. Employers are not required to contribute to the VPF account. Additionally, once opened, the VPF account cannot be closed for five years, and contributions cannot be discontinued during this period.
Difference between VPF and EPF
Aspect |
EPF |
VPF |
Opening account |
Mandatory for eligible employees |
Voluntary for any salaried individual (except NRIs) |
Interest rate |
8.15% per annum |
8.15% per annum |
Tax benefit |
Up to Rs. 1.50 lakhs per year under Section 80C |
Up to Rs. 1.50 lakhs per year under Section 80C |
Period of investment |
retirement or resignation |
5 years or unemployment whichever is earlier |
Employer contribution |
12% of basic salary + DA (mandatory) |
Not applicable |
Employee contribution |
12% of basic salary + DA (mandatory) |
Voluntary, up to 100% of basic salary + DA |
Partial withdrawal |
Allowed for specific reasons |
Allowed for specific reasons |
Additional read: EPF Eligibility
Conclusion
The Voluntary Provident Fund is a flexible and beneficial option for those looking to boost their retirement savings. VPF offers salaried individuals a government-backed avenue for tax-efficient savings, and the potential for higher returns over the long term.
It is essential to read the benefits and drawbacks of this scheme carefully and consult with a financial advisor before making any investment decisions. However, if used wisely, VPF can be a great asset in securing your financial future.
