For salaried individuals in India, the Employees’ Provident Fund (EPF) is a cornerstone of retirement savings. Under EPF regulations, both employees and employers contribute 12% of the employee’s basic salary and dearness allowance (DA) to the Provident Fund account. At present, this investment yields an interest rate of 8.25%, which is higher than many other government savings schemes.
However, for those seeking to maximize returns and save more for the future, the Voluntary Provident Fund (VPF) offers an excellent opportunity. By increasing contributions via VPF, employees can leverage the same high interest rates and enjoy tax benefits.
What is the Voluntary Provident Fund (VPF)?
The VPF is an extension of the EPF scheme, allowing employees to contribute more than the mandatory 12% of their basic salary and DA. While the employer’s contribution remains capped at 12%, employees can voluntarily contribute up to 100% of their basic salary and DA. The interest rate for VPF contributions is identical to that of EPF, making it a highly attractive savings option.
How to Start Contributing to VPF
- Contact Your HR Department:
Inform your HR team about your intention to contribute to VPF. They will guide you through the necessary steps. - Fill Out the Required Form:
You must complete a form indicating the percentage of your salary you wish to allocate to VPF. - Submit the Form:
Submit the filled form to your HR department, which will initiate the process to link your VPF contribution with your existing EPF account. - Automatic Deductions:
Once set up, your VPF contributions will be automatically deducted from your salary each month, similar to EPF.
Advantages of the Voluntary Provident Fund
- High Interest Rate:
Contributions to VPF earn the same interest rate as EPF, currently at 8.25%, ensuring substantial returns over time. - Tax Benefits:
VPF falls under the Exempt-Exempt-Exempt (EEE) category, meaning:- Contributions qualify for tax exemption under Section 80C of the Income Tax Act, up to ₹1.5 lakh per financial year.
- The interest earned is tax-free.
- Withdrawals after the lock-in period or at retirement are also tax-free.
- Long-Term Savings:
Funds invested in VPF are locked in for five years, encouraging disciplined, long-term saving. After this period, partial withdrawals are permitted for specific needs, and the full amount is accessible upon retirement. - Seamless Portability:
If you change jobs, your VPF contributions and accumulated corpus can be easily transferred to your new employer’s EPF account. - Retirement Security:
The VPF helps build a larger retirement corpus, offering financial stability and security for post-retirement years.
Withdrawal Rules for VPF
- Lock-In Period: A minimum lock-in period of five years applies to VPF contributions.
- Partial Withdrawals: Allowed after five years for specific purposes like marriage, education, or medical emergencies.
- Full Withdrawal: Permitted only at retirement or in cases of severe illness or other specified conditions.
- Online Withdrawal Requests: Employees can submit withdrawal requests online through the EPFO portal.