VPF or the Voluntary Provident Fund is an excellent long-term investment choice with good returns and a minimal risk component. This initiative, operated by GOI, provides candidates with tax advantages.
Do not miss Saving Schemes in India.
Up to retirement or resignation
Amount of Investment
Depending on the employee
Depending on the investment amount
VPF is a typical provident fund savings arrangement. On the other hand, the contributor determines the size of the fixed contribution given to the program monthly under the VPF scheme.
- The interest rate of 8.1% p.a.
- Investing carries only little risks.
- It is simple to transfer funds in the event of a career switch.
- It is simple to create a VPF account.
Employees are permitted to make voluntary contributions to their provident fund account under the VPF program. The Voluntary Retirement Fund program is another name for it. The system excludes the statutory 12% contribution that employees must pay to the Employees’ Provident Fund (EPF).
Employees are allowed to pay up to 100% of their base income and dearness allowance to the program. The VPF interest rate is comparable to that of the EPF program. Employers and workers are not required to contribute to the VPF. The program, however, includes a 5-year lock-in term. The Government of India determines the VPF interest rate on an annual basis.
Eligibility for the VPF?
Because the VPF program is an extended version of the EPF, only paid employees who earn monthly payments in their salary accounts are entitled to invest.
Required Documentation to create a VPF account?
Employees must provide the following documentation to create a VPF account:
- The certificate of business registration with the Ministry of Finance (MoF) must be supplied.
- Forms 24 and 49 must be completed.
- The memorandum and articles of association must be provided if the organization is an ‘Sdn Bhd.’
- A detailed corporate profile must be provided.
- The certificate of business registration must be supplied.
- Employees should verify with their employers to see if any additional documentation is required to start a VPF account.
The VPF account is classified as Exempt-Exempt-Exempt (EEE). Employees can thus benefit from tax breaks while also earning a lot of money in the long term by enrolling in the VPF. The following are the primary advantages of a VPF account:
- Investing in a safe option: Because the system is run by the Indian government, there are no dangers associated with investing in it. When opposed to other long-term investment choices given by private organizations, investing in a VPF account is quite safe.
- High-interest rate: The VPF program offers an annual interest rate of 8.1%. The interest earned from donations is likewise tax-free.
- The application procedure is simple: The procedure for opening a VPF account is straightforward. Employees can request that their employer’s financial department create a VPF account by completing the registration form. The present EPF account will also serve as the VPF account.
- The transfer procedure is straightforward: Employees who move employment may easily transfer their VPF account from the previous firm to the new one.
A VPF provides tax advantages
When it comes to different investing alternatives in India, the VPF account is regarded as one of the finest. Employees are entitled to tax advantages of up to Rs.1.5 lakh per Section 80C of the IT Act 1961. The interest earned from these donations is tax-free as well. But, if the interest rate is greater than 9.50% per annum, the sum will be taxed.
A VPF’s interest rate
The Indian government sets the interest rate, which is updated annually. The interest rate for the fiscal year 2021-2022 is 8.1% per annum. The interest rate has been reduced from 8.65%, which was formerly the rate of interest. Investments in a VPF account are feasible because of the high rate of interest and tax considerations.
PPF rate of interest p.a.(%)
VPF rate of interest p.a.(%)
7.6 to 8
7.6 to 8
8 to 8.1
VPF rules and regulations
The following are the VPF account rules and regulations:
- Unlike an EPF account, employees can invest100% of their basic income and dearness allowance to a VPF account.
- Employees are not required to invest in a VPF account.
- The interest rate on a VPF account is determined by the Indian government at the beginning of the fiscal year. When compared to past years, the rate might rise or fall.
- At the moment of resignation or retirement, the whole approximate amount at maturation can be withdrawn. Individuals can also shift their VPF balance from one employer to another. If the account holder dies, the whole money accumulated will be distributed to the legal heir or designee.
- Individuals who work for firms that are part of the Employees’ Provident Fund Organisation (EPFO) and hold an EPF account are the only ones who are eligible to register a VPF account. Individuals working in unorganized industries are not permitted to create a VPF account.
- Individuals can create a VPF account at any point throughout the fiscal year. For five years, investments put into the account cannot be canceled.
- Fractional withdrawals in the shape of loans against the VPF account are permitted. If the cash is removed before the maturity term, the amount is taxed.
Withdrawing funds from a VPF account
Withdrawing funds from a VPF account may be useful in the event of a financial emergency due to a medical emergency. Employees must complete Form-31 and submit a written request for VPF withdrawal. Employees can get Form-31 via their employer’s Human Resources (HR) department or from the government’s webpage. All relevant documentation, including the employee’s PF number, mailing address, and bank information, must be supplied. A canceled check must also be included. All submitted documents must be self-attested.
Employees are permitted to withdraw funds from their VPF accounts in the event of an unanticipated financial emergency. The following are some of the explanations for why the VPF might fail:
- If the account holder’s or his children’s medical costs must be paid.
- For the account holder’s marriage or higher education.
- To purchase fresh land or a house, or to build a house.
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VPF - Voluntary Provident Fund FAQs
Anyone who wants to invest in a long-term financial asset is a good fit. VPF accounts are suitable for persons approaching retirement and/or searching for a solid, reliable, and expandable pension fund solution.
Partial withdrawals and full withdrawals of funds accrued in the VPF account are also available. People who change employment are more likely to breach their voluntary pf accounts and access the funds. However, if such an action is taken before the account has been open for 5 years, the accrued funds are liable to taxes.