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Voluntary Provident Fund (VPF); Meaning, Eligibility and Benefits

In this article, we cover all the important aspects of Voluntary Provident Fund (VPF)

What is Voluntary Provident Fund (VPF)?

VPF or Voluntary Provident Fund as the name suggests is a voluntary contribution of a certain amount by an employee in his/her Voluntary Provident Fund account. VPF is similar to Employee Provident Fund but does not have any contribution rate upper ceiling, this means that the maximum contribution limit is just not limited to 12% but 100% of the employee basic wage and dearness allowance (Basic +DA). VPF or VRF (Voluntary Retirement Fund) is the best retirement tax saving scheme to date. However, it shall be noted that the employer has no legal obligation to contribute towards VPF or VRF. Once an employee starts contributing towards VPF or VRF it cannot be terminated or discontinued before 5 years of base tenure. The interest rate of the Voluntary Provident Fund or Voluntary Retirement Fund is decided by the Government of India at the starting of each financial year.

Who is eligible to contribute to the Voluntary Provident Fund?

Every salaried individual who is the company’s payroll can contribute to Voluntary Provident fund or Voluntary Retirement Fund.

 

Benefits of VPF (Voluntary Provident Fund)

  1. Tax Benefits
    • As per section 80C of Income Tax Act 1.5 Lakh INR contribution amount is deductible annually
    • As per the Income Tax Act, up to 9.5% of interest received is exempted
    • The maturity amount of VPF is tax-free
  1. Risk-free Investment Option
    • VPF is considered as the Risk-free investment option as it is managed by the Government of India directly and has a fixed rate of interest.
  1. Easy to Open
    • Any employee can open a VPF account by approaching to his employer and can enter the amount of VPF contribution in his basic KYC form. Then EPF account will serve the purpose of the VPF account too.
  1. Loan Facility
    • An employee registered in VPF can also avail of the loan facility provided by the government to the VPF Account holder. He/She can take a loan for any purpose such as a child’s marriage, child’s education or home loan repayment.
  1. High returns
    • The returns are considerably high when compared with other debt-oriented investment plan. Currently, the interest rate under the Voluntary Provident Fund is accrued at 8.65% P.A.
  1. Easy Transfer
    • In case of change of employment, the Voluntary Provident Fund amount does not get affected as every employee has a Unique Account Number (UAN) that is linked with EPF Account.

 

Withdrawal of VPF or VRF

In case if you withdraw the fund amount from VPF (Voluntary Provident Fund) before 5 years (min. Tenure) then you need to pay tax on the amount withdrawn. The employee can withdraw a partial amount from VRF/VPF as a loan. Moreover, in case of the death of an employee, the nominee gets the fund accumulated in the VPF/VRF account.

In case of any financial emergency, the employee is free to withdraw the fund from the Voluntary Provident Fund. These financial emergencies can include anything such as

  • Medical bills payment
  • Child’s marriage and education
  • Purchase of new land or construction of house