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Voluntary Provident Fund (VPF): Eligibility, Benefits, and Interest Rate

Team AckoNov 29, 2024

The Voluntary Provident Fund (VPF) is not just another retirement plan—it’s a smart investment tool that helps you secure your future. It acts as a safety net, ensuring that you build a substantial corpus for your post-retirement days while offering VPF tax benefits, attractive VPF interest rates, and the freedom to save beyond the mandatory requirements.

Understanding the VPF meaning, VPF full form, and VPF contribution limit is crucial in making well-informed decisions about maximising this scheme. Whether you’re interested in how to check VPF balance, want to understand the VPF interest rate, or are exploring the full potential of your VPF contribution, this long-term investment is designed to make your money work harder for you. So, if you’re ready to kick-start your retirement savings and take advantage of the VPF contribution, this could be the perfect option to secure a financially stable future.

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Contents

What is the Voluntary Provident Fund in India?
Eligibility Criteria for Voluntary Provident Fund
4 Key Benefits of the Voluntary Provident Fund
How to Opt for the Voluntary Provident Fund?
How to Check the VPF balance?
Follow these steps to check the VPF balance.
Difference between Employee Provident Fund and Voluntary Provident Fund
Key Takeaways about Voluntary Provident Fund
Conclusion
Frequently Asked Questions (FAQs)

What is the Voluntary Provident Fund in India?

A powerful saving plan in India is the Voluntary Provident Fund (VPF), which enables employees to give voluntary contributions above and beyond the mandatory Employee Provident Fund to their VPF account. Thus, it saves a higher corpus for employees to be salvaged for a secured future. In essence, it is a wing of the EPF under the management of Employees' Provident Fund Organisation (EPFO), and the latter especially focuses on helping people create savings for their retirement days.

What is VPF contribution? Contributions allowed under VPF are up to 100% of the basic salary and dearness allowance. Section 80C of the Income Tax Act provides tax relief through VPF, as this has all the characteristics of a long-term savings account. The interest rate in VPF would be equivalent to EPF declared by the government, and hence, returns would be safe and steady. As such, the VPF contribution limit allows employees to pay more than the mandated EPF amount, ensuring they make the maximum savings.

VPF Interest Rate: The Indian government annually sets the Voluntary Provident Fund (VPF) interest rate. For the financial year 2023-24, the rate stands at 8.15% per annum, offering a secure return for your savings.

Check VPF balance: For those seeking to know how to check VPF balance, the exercise is quite straightforward and can be undertaken through the EPFO portal or via an SMS from your phone.

Eligibility Criteria for Voluntary Provident Fund

To be eligible for the Voluntary Provident Fund in India, an individual must meet the following criteria.

Be an active member of an organisation that falls under the purview of the EPF scheme.
Be a member of the EPF scheme and have an active EPF account.
The employer should offer the VPF facility to its employees.

4 Key Benefits of the Voluntary Provident Fund

Let's take a closer look at some of the benefits of a Voluntary Provident Fund.

1. Higher Returns

One of the key advantages of the VPF is that it offers higher returns compared to other fixed-income investment options. As the VPF is linked to the EPF scheme, the funds are invested in government securities, bonds, and other low-risk instruments. This ensures that the contributions made by employees grow steadily over time, providing them with a substantial corpus at the time of retirement.

2. Tax Benefits

Contributions made towards the VPF are eligible for tax benefits under the Income Tax Act (80C). This means that the amount contributed towards the VPF can be deducted from the employee's taxable income, thereby reducing their overall tax liability. Additionally, the interest earned on the VPF is tax-free, making it an attractive investment option for individuals looking to save on taxes.

3. Flexibility in Contribution

Unlike the EPF, which has a fixed contribution rate, the VPF allows flexibility. This provides individuals with the freedom to enhance their savings as per their financial goals and obligations. The higher contribution also leads to an increase in the overall corpus, ensuring a comfortable retirement for employees.

4. Employer Matching

In some cases, employers may choose to match the contributions made by employees towards the VPF. This means that for every rupee contributed by the employee, the employer also contributes an equal amount, effectively doubling the employee's savings.

How to Opt for the Voluntary Provident Fund?

Opting for the Voluntary Provident Fund is a straightforward process. Employees who meet the eligibility criteria can follow these steps to avail themselves of the benefits of the VPF.

Contact the HR Department: Inform your organisation's HR department about your decision to opt for the VPF scheme.
Submit the Necessary Documents: Fill out the required forms and submit them to the HR department along with the necessary documents, such as a copy of your PAN card and bank account details.
Choose the Contribution Percentage: Decide on the percentage of your salary that you wish to contribute towards the VPF. Remember, this percentage should not exceed your basic salary and dearness allowance.
Start Contributing: Once your application is processed, your chosen contribution percentage will be deducted from your salary and deposited into your VPF account along with the regular EPF contributions.

How to Check the VPF balance?

Follow these steps to check the VPF balance.

Go to the EPFO's official website.
Navigate to the 'Our Services' section and click on 'For Employees.'
Look for the 'Services' heading and select the 'Member Passbook' option.
Enter your UAN (Universal Account Number) and password, then click on the 'Login' button.
Choose the relevant Member ID associated with your VPF account.
Click on the 'View Passbook' option to access your EPF passbook, which will contain all the information related to your VPF account.

Difference between Employee Provident Fund and Voluntary Provident Fund

The following table highlights the key differences between the Employee Provident Fund and Voluntary Provident Fund.

Aspect	EPF (Employee Provident Fund)	VPF (Voluntary Provident Fund)
Contribution Type	Mandatory	Voluntary
Employee Contribution	Fixed percentage of salary	Additional percentage over mandatory EPF contributions
Contribution Limit	Limited to a certain percentage of salary, as defined by the EPFO	No specific upper limit, but cannot exceed basic salary + DA
Employer Matching	The employer is required to match the employee's contributions, contributing an equal amount to the EPF account.	No mandatory requirement for the employer to match the additional voluntary contributions made by the employee. However, some employers may choose to match the VPF contributions as an additional benefit.

Key Takeaways about Voluntary Provident Fund

Here are some crucial details you should be aware of regarding the Voluntary Provident Fund.

VPFInterestRate: The VPF interest rate is determined by the government and is usually aligned with the EPF interest rate, providing competitive returns on the contributions made.
VPF Tax Benefits: Contributions towards the VPF are eligible for tax benefits, allowing individuals to reduce their taxable income.
VPF Tax Exemption: The interest earned on the VPF is tax-exempt, providing an additional advantage as the accumulated corpus grows tax-free.
VPF Contribution Limit: There is no specific upper limit for VPF contributions. However, employees cannot contribute more than their basic salary and dearness allowance to the VPF.
VPF Withdrawal Rules: Ideally, individuals are entitled to receive the complete accumulated amount in their EPF account upon retirement or resignation. Similarly, in the unfortunate event of untimely demise, as per the VPF withdrawal rules of 2020, the funds can be released and disbursed to the nominated beneficiary. Moreover, the VPF regulations permit partial withdrawals from the Voluntary Provident Fund as loans. In certain circumstances, it is also feasible to withdraw the entire accumulated corpus.
VPF Lock-in Period for Taxation: The VPF has a lock-in period of five years. If this is violated, it can have tax repercussions.

Conclusion

For high-net-worth individuals looking for secure investments, tax advantages, and high returns, the Voluntary Provident Fund (VPF) presents an alluring choice for savings and investment. You can improve your financial strategy by making well-informed judgements by comprehending the features and advantages of the VPF and contrasting it with alternative savings plans. The VPF offers a strong and adaptable option whether you want to increase your savings or maximise your tax planning.

Frequently Asked Questions (FAQs)

Here are some FAQs about the Voluntary Provident Fund in India.

1. What is PF eligibility?

PF eligibility refers to the criteria required for an employee to be eligible for the Provident Fund (PF) scheme. Generally, employees earning a basic salary of up to ₹15,000 per month are eligible, though companies may have their own rules for PF eligibility for company.

2. What is the PF contribution percentage?

The PF contribution percentage typically includes a 12% contribution from the employee and the employer towards the Provident Fund. However, the exact percentage may vary based on company policies.

3. What is the interest rate on PF?

The government determines the provident fund interest rate annually. For the financial year 2023, the PF percentage 2023 is set at 8.15%. The interest earned on your provident fund percentage is tax-free.

4. How much interest on PF can I earn?

The amount of interest on PF depends on your monthly contribution and the current provident fund interest rate. The interest is compounded annually, ensuring your balance grows steadily.

5. Can I withdraw funds from my VPF account before retirement?

Yes, you can withdraw funds from your VPF account before retirement. However, it is subject to certain conditions and restrictions.

6. VPF comes under which section?

VPF contributions are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.

7. What is the PF percentage for 2023?

The PF percentage 2023 remains consistent at 8.15%, which is the interest rate provided by the government on your accumulated funds in the Provident Fund account.

8. How to open VPF account?

To open a VPF account, follow these steps:

Contact your HR or payroll department.
Submit a written application or form requesting an increase in your EPF contribution.
Specify the percentage or amount of your salary you want to contribute.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.