VPF is a voluntary increase in the contribution towards PF, with no matching contribution from the employer. Since the amount is deducted even before the salary is paid, it is a disciplined way to invest. The investment earns a fixed interest each year, as declared by the government. The contributions are also eligible for deduction under Section 80C of the Income Tax Act, up to a maximum of 1.5 lakh each year.
Government of India will continue to pay employer and employee contributions to employees’ EPF accounts. The benefit is available to businesses with up to 100 employees and a wage of less than Rs 15,000 per month for 90% of those employees. Non-government organisations’ EPF contributions have been lowered to 10% from 12%.
You can decide for the VPF Voluntary Provident Fund if you are searching for a long-term investment opportunity with good yields and a low potential risk. This scheme, operated by the Government of India, provides participants with tax benefits. The Voluntary Provident Fund (VPF) is a scheme coming under the conventional savings scheme of the Provident Fund. That being said, under the VPF scheme, the contributor agrees, on a monthly basis, on the amount of the fixed contribution to the scheme. VPS enables you to deposit more in your EPF account, and it’s voluntary, as the title implies. The scheme does not comprise the required 12 percent made by the employee towards EPF.
VPF is a scheme that comes under the traditional provident fund savings scheme. However, under the VPF scheme, the contributor decides on the amount of fixed contribution that is made towards the scheme on a monthly basis.
- Rate of interest of 8.1% p.a.
- Risks of investing are minimal
- Easy to transfer the amount in case of a job change
- Easy to open a VPF account
Benefits of VPF
The VPF account comes under the Exempt-Exempt-Exempt (EEE) category. Therefore, employees can enjoy tax benefits and earn a large amount of money in the long-run by investing in the VPF. The main benefits of a VPF account are mentioned below:
Safe option to Invest- Investing in the plan is a risk-free proposition because it is run by the Indian government. Investing in a VPF account is highly safe when compared to other long-term investment choices given by private organisations.
Interest rate is high – The VPF programme has an interest rate of 8.50 percent per annum. The interest earned on the donations is likewise tax-free.
Easy Application – The procedure for opening a VPF account is straightforward. Employees can submit a registration form to their employer’s finance department, requesting that they start a VPF account. The existing EPF account will also be used as the VPF account.
Lock-in period of VPF Contributions
Since VPF contributions are deposited in the EPF accounts of employees, the VPF contributions too will have the same lock-in period as that of the EPF. One can withdraw from their on VPF contributions if he or she is unemployed for more than two months or when they retire.
Higher Interest Rate
VPF has the same interest rate as EPF, which the government determines every fiscal year. The Indian government announces the EPF/VPF interest rate every year, and it is subject to adjustment. The EPF interest rate is currently 8.5 percent. If compared to the other debt-saving instruments like 5-year bank FDs, Senior Citizen Savings Scheme, National Savings Certificate, Public Provident Fund and Pradhan Mantri Vaya Vandana Yojana (PMVVY), VPF provides you the highest interest rate along with tax benefits.
Interest rate of a VPF
|VPF rate of interest p.a.(%)
Tax Benefits available under a VPF
When it comes to various investment options in India, the VPF account is considered among the best. Under Section 80C of the Income Tax Act, 1961, employees are eligible for tax benefits of up to Rs.1.5 lakh. The interest that is generated from these contributions is also exempt from tax. However, in case the rate of interest is more than 9.50% p.a., the amount will be taxable.
Flexible Withdrawal Option
It’s worth noting that VPF withdrawals made before completing five years of continuous service are taxable. In the case of an unexpected and immediate financial situation, the money in the VPF account can be withdrawn, according to certain restrictions. A depositor’s VPF balance can be withdrawn for a variety of purposes, namely medical emergencies, children’s higher education or marriage, the purchase/construction of a house or other residential plot, and the repayment of a home loan.
Shorter-Lock in Period
VPF is regarded as one of the best investment opportunities, primarily for those searching for long capital growth. Contributions to a VPF account have a 5-year maturity period, according to Voluntary Provident Fund withdrawal regulations. As a result, a person cannot withdraw funds from their Voluntary Provident Fund until the end of the 5-year period without incurring penalties. The withdrawal is tax-free, as long as it is not withdrawn before the 5-year maturity period.
How to take money out of a VPF account?
Withdrawing money from a VPF account might be useful in the event of a financial emergency caused by 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 Resource (HR) department or from the government’s website. All relevant documentation must be supplied, including the employee’s PF number, mailing address, and bank account information. In addition, a cancelled check must be supplied. Self-attestation is required for all documents submitted. Employees are permitted to withdraw funds from the VPF account in the event of a financial emergency.
Why VPF is a Good Investment Option for Retirement Planning
VPF gives higher returns than PPF, bank fixed deposit and 5-year NSC or national savings certificate. While PPF and 5-year NSC give 8 per cent return at the current rate, fixed deposits attract an even lower rate of 7.5 per cent. That is why it (VPF) can be a secured investment avenue for maximising the retirement benefits.
- This scheme is a very good investment option for the private sector employees in their 40s and with this increase in the rate, it eve becomes more lucrative. VPF is a risk-free and tax-free investment option. Even young employees can put money into this to maximise their retirement benefits. Under this scheme, employees can contribute voluntarily in addition to the EPF contribution.
- VPF is a great retirement planning tool and therefore, it should be there in the debt portfolio of all salaried employees. VPF scheme is flexible and convenient, as VPF contribution amounts are deducted from salary.
- VPF should be in employees’ portfolio as early as possible early as this will help them reap better retirement benefits. However, employees at a young age may keep more high-return investments like mutual funds and equities in their portfolio.
- VPF comes with withdrawal restrictions and full withdrawal is possible only at the time of retirement. If an account holder regularly contributes to this scheme for five years then s/he gets tax exemption.