What is VPF?
The Voluntary Provident Fund (VPF) is an optional savings scheme for salaried employees in India. It allows you to contribute more than the mandatory 12% of your basic salary and dearness allowance (DA) that goes into the Employees’ Provident Fund (EPF). These additional contributions earn the same interest rate as EPF and are managed by the Employees’ Provident Fund Organisation (EPFO).
Key Features of VPF
- Voluntary Contributions: You can contribute up to 100% of your basic salary and DA.
- Interest Rate: For the financial year 2025-26, the interest rate is 8.25% per annum.
- Tax Benefits: Contributions up to ₹1.5 lakh per annum qualify for tax deductions under Section 80C. The interest earned and maturity amount are also tax-free, provided certain conditions are met.
- Lock-in Period: There is a minimum lock-in period of 5 years. Withdrawals before this period may attract taxes.
- Eligibility: Only salaried employees who are members of the EPF scheme can opt for VPF.
Benefits of Investing in VPF
- Safe Investment: Being government-backed, VPF is considered a low-risk investment.
- Higher Returns: The interest rate is generally higher than other traditional savings instruments like fixed deposits.
- Easy to Manage: Contributions are deducted directly from your salary, ensuring disciplined savings.
- Portability: If you change jobs, your VPF account can be transferred to your new employer.
How to Open a VPF Account
- Contact HR: Inform your employer or HR department about your intention to contribute to VPF.
- Specify Contribution: Decide the percentage of your salary you wish to contribute.
- Documentation: Fill out the necessary forms provided by your employer.
- Start Contributions: Once processed, the specified amount will be deducted from your salary and credited to your VPF account.
Withdrawal Rules
- After 5 Years: Withdrawals after completing 5 years are tax-free.
- Before 5 Years: Withdrawals before 5 years may attract taxes on the interest earned.
- Partial Withdrawals: Allowed under specific circumstances like medical emergencies, education, or purchase of a house.
Tax Implications
- Section 80C: Contributions up to ₹1.5 lakh are eligible for tax deductions under Section 80C.
- Interest Income: Interest earned is tax-free, provided the total annual contribution (EPF + VPF) does not exceed ₹2.5 lakh.
- Maturity Amount: Tax-free if withdrawn after 5 years of continuous service.
VPF vs. Other Savings Schemes
| Feature | VPF | PPF | NPS |
|---|---|---|---|
| Interest Rate | 8.25% p.a. | 7.1% p.a. | Market-linked |
| Tax Benefits | EEE | EEE | EEE (with conditions) |
| Lock-in Period | 5 years | 15 years | Till retirement |
| Contribution Limit | Up to 100% of salary | ₹1.5 lakh per annum | No upper limit |
| Risk Factor | Low | Low | Moderate to High |
In summary, the Voluntary Provident Fund is an excellent option for salaried employees looking to enhance their retirement savings with the added benefits of tax exemptions and higher interest rates. Its government-backed nature ensures safety, making it a preferred choice for conservative investors.
