Voluntary Provident Fund (VPF): Everything You Need To Know
Personal Finance

Voluntary Provident Fund (VPF): Everything You Need To Know

Every employee who has a provident fund account can contribute to it voluntarily. This contribution is apart from the mandatory 12% contribution that they make towards the Employee Provident Fund (EPF). Voluntary Provident Fund (VPF) is also called the Voluntary Retirement Fund.

An employee can contribute up to 100% of their basic salary and dearness allowance to their VPF account and earn an exciting rate of interest on the Voluntary Provident Fund. The rate of interest will be the same as that of EPF.

It’s not mandatory for the employers to contribute to the employees VPF account. On the same note, it’s important to mention here that employees are not bound by any law to contribute to VPF.

It’s up to their own will whether to contribute or not. Once you’ve started contributing to VPF, you cannot discontinue it before 5 years. So that’s something that you need to keep in mind while opting for VPF. The VPF interest rate is decided by the Government of India at the start of each financial year.

Voluntary Provident Fund – Quick Facts

  • The current VPF interest for the Financial Year 2018-19 is 8.65%.
  • Helps build a corpus for house construction or purchase of a new house or land
  • To pay hefty medical bills for the account holder and family/dependents

Who can invest in VPF?

VPF is basically an extension of EPF. So, this facility is available to all salaried individuals who have a valid EPF account.

Benefits of VPF

The VPF is basically under EEE (exempt on/from contribution, principal, and interest) category, which makes it a wonderful tax-saving option. With the help of VPF, employees are able to generate a sizeable saving portfolio, which helps them in difficult times of life.

The following are some key benefits of the Voluntary Provident Fund:`

Safe investment option

The government of India backs this scheme with fixed interest rates; hence, it’s a safe investment option. Some private players also run similar schemes but they are not as safe as this scheme is.

Easy to contribute

VPF is easy to apply in the sense that you have to approach your company’s Finance or Human Resource team and they shall take care of the rest. You need to fill up a registration form, which will link your existing EPF account with a VPF account.

Great returns

You will get great returns on your investment in VPF. Currently, the rate of interest linked to VPF is 8.65%. So, if you are looking at a long term perspective, then you will reap high returns.

If you are contributing Rs 1.5 lakh a year, then your investment is tax-free under section 80C of the Income Tax Act, 1961. The resulting VPF interest rate is also tax-free like EPF.

Easy to transfer

When you change your job, then you need to transfer your VPF account as well. This process is quite smooth and hassle-free and you don’t need to worry about that either.

Easy withdrawal

It’s quite possible that you need to withdraw a certain amount from your VPF account. You are allowed to make a partial withdrawal as well as a complete withdrawal.

If you tend to withdraw the required amount before the 5 years lock-in period, then you have to pay the tax as per the IT rules and regulations. In case the accountholder retires or resigns, then the maturity amount is paid to the account holder directly. If the account holder dies, then the nominee is eligible to withdraw the amount.

The best thing about VPF fund is that the accumulated money can be withdrawn at any time depending upon the need and current circumstances.

In case of an unforeseen financial emergency, then you can always rely on your VPF account. These are some of the reasons you can break your VPF account for.

  • If you need to pay the medical bills of any unforeseen ailment, VPF account is your best buddy. This is quite important in the sense that diseases can strike anybody and we need to be prepared with a financial backup.
  • Marriage and higher education – These are two important occasions when you need a handsome amount of money. With VPF by your side, you don’t need to worry, as you can happily meet your expenses.
  • Purchase of land or for house construction – You need money for these two purposes as well. You can easily withdraw the required amount of money from your VPF account and utilize as per your requirement.

Voluntary Provident Fund – FAQs

While you may have so many questions when it comes to VPF, the following are some frequently asked ones:

1. How are EPF and VPF different from each other?

VPF is basically an extension of EPF. In EPF, you have to mandatorily contribute at least 12% of your basic salary and dearness allowance. VPF is totally different.

It’s up to you whether or not you want to sign up for this investment option or like how much you want to contribute the account. You may choose to contribute as little as 10% or you may contribute 100% as well.

2. What is the eligibility criterion for opening a VPF account?

If you are on a company’s payroll, then you are eligible to open a VPF account – it’s as simple as that.

3. What will happen to my VPF account if I change my current job?

Your VPF account is basically linked to your Aadhaar Card. So, if you change your current job, then you can easily shift your VPF account to your new employer just like EPF.

Conclusion!

VPF provides you with excellent returns on your savings and provides a lot of other facilities as well. The best part is that it’s easy and quite hassle-free to sign up for VPF. You just need to get in touch with your company’s HR or finance department, fill up the form, and you are good to go.

If you are changing your company, then it’s easily transferable too. You save tax also and since it’s backed by the Government of India, there is no chance of getting duped.

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