Voluntary Provident Fund (VPF): Interest Rate, Benefits, How to Open?
A solid retirement fund is of utmost importance to enjoy your golden years without any worry. It helps you stay financially fit even after your regular income stops after retirement. The government has introduced retirement schemes like employee’s provident fund (EPF) for all the salaried employees. The scheme ensures that 12% of your basic salary and dearness allowance is invested in a retirement account, with your employer also contributing the same amount. This investment accrues a fixed interest rate as well. But often, EPF may not be a sufficient retirement corpus particularly when there are factors like inflation.
A Voluntary Provident Fund (VPF) could be a possible solution here. VPF allows you to invest more than is legally necessary for your PF account. So, in this article, you’ll know what is VPF, how it works, its interest rates, benefits, how to open a VPF account and everything that you need to know.
What is a Voluntary Provident Fund Account?
Any salaried employee working in an organisation which is duly recognised by the EPFO can avail of the VPF scheme. It is a voluntary contribution you can make to your current EPF account. So, your contribution to VPF should be over the 12% contributed to EPF. You have the option to invest upto 100% of your basic salary and dearness allowance in your provident fund account through voluntary PF.
The most significant advantage here is that your Voluntary Provident Fund contribution also accrues the same interest rate as EPF. This interest rate is announced by the Government of India every financial year.
Since it is a voluntary plan, you are under no obligation to opt for this. But once you sign up for a VPF, you cannot terminate or discontinue before the base tenure of five years. You should also note that employers are under no obligation to contribute to their employees’ VPF account.
Features of Voluntary Provident Fund
- Employees can contribute their basic salary (along, with dearness allowance) in their VPF account.
- VPF is a part of EPF. The contribution limit is higher for VPF.
- Salaried employees working for organisations recognised by the EPFO can invest in VPF.
- Enrolment in VPF is voluntary meaning it’s up to each employee whether they want to join or not.
- VPF has a lock in period of 5 years during which withdrawals are not allowed, except under certain conditions.
- The VPF interest rate is 8.15% for FY 2023-24, which matches the EPF interest rate.
- Upon resignation or retirement employees are entitled to receive their amount saved in the VPF account. This amount can also be transferred from one employer to another similar, to how it works with EPF.
Benefits of Voluntary Provident Fund Account
The voluntary provident fund is a beneficial scheme that can help you create a considerable corpus for retirement. Here are some benefits of VPFl:
- Low Risk: One of the most significant benefits of VPF is that the risk level is low. It accrues fixed returns based on the interest rate announced by the government. Further, it carries sovereign guarantee.
- Easy to Open: Opening a VPF account is easy. You simply need to contact your company’s HR/Finance Team and ask them to register a request for an additional contribution through the VPF.
Your VPF contribution gets automatically deducted from your salary and requires no manual intervention.
- Decent Returns: The current VPF interest rate, as of September 2022, is 8.1%. This rate is higher compared to most conservative investment options such as Fixed Deposits.
- Easy to Switch: Many employees are concerned about what will happen to their EPF/VPF accounts if they switch jobs. But the process is simple and will be handled by the HR departments of your new and old employer.
- Nominee Benefit: In case of sudden death of the investor, the entire amount accumulated in the VPF account will be paid to the nominee or legal heir of the employee
- Highly Liquid: The Voluntary Provident Fund rules allow the contributor to withdraw money anytime, making the VPF contribution highly liquid. However, early withdrawal will be taxable in the hands of the investor.
VPF Tax Benefits & Exemption
Your VPF contribution up to Rs.1.5 lakh is exempt from tax under Section 80C, increasing the return potential of VPF. Further, if your contribution via EPF and VPF is less than Rs 2.5 lakh in a financial year, then the interest earned is also tax-free. Thus, a VPF account comes under the Exempt-Exempt-Exempt (EEE) category.
*Please note that if an employee’s own contribution via EPF and VPF exceeds Rs 2.5 lakh in a financial year, then the interest earned on the excess amount will be taxable in the hands of an individual.
How to Open a VPF Account?
- To open a VPF account, you need to write a letter to their employer or the HR (depending on organisation policies) requesting a deduction from your basic salary for VPF contributions.
- Voluntary Provident Fund accountVoluntary Provident Fund have a lock in period of 5 years.
- You can open VPF accounts at any point during the year you cannot stop making VPF contributions within the year.
- Make sure to provide your details along with the desired contribution amount from salary.
- Fill the application form properly then sign and submit it to the payroll department of your company.
Documents required for Voluntary Provident Fund Account
The employer needs to submit the following documents for VPF registration:
- Detailed company profile
- The Business Registration Certificate (Form 9 & Form D)
- MOF- Company Registration Certificate Forms 24 & 49
- Any other documents required additionally as per government regulations
VPF Interest Rate 2023-24
The VPF rate of 2023-24 is 8.15% which is the same as the EPF interest rate as EPF rate. The government announces this rate every year, which could change based on prevailing economic conditions. Below are some historical interest rates of VPF.
Crucial things To Remember
- Self employed individuals and workers in the non-organised sector are not eligible for VPF.
- VPF funds have a lock in period of 5 years.
- For government employees or those employees whose employer does not contribute to the EPF account, the deposit limit is Rs 5 lakh instead of Rs 2.5 lakh.
- Voluntary Provident Fund contribution is not fixed for the entire tenure. This is because every time you get a salary hike, your mandatory EPF contribution also hikes. Thus, you must ensure that you can contribute via VPF without crossing the tax-exempt threshold in future years as well.
VPF Rules for Withdrawal
Here are some points to remember if you wish to withdraw your VPF money.
- Your corpus will be taxable if you withdraw before the lock-in period ends. Any interest earned on withdrawn VPF contribution before completion of lock-in period will also be taxable.
- The government also allows partial and complete withdrawal of VPF before the lock-in period. However, there are certain circumstances under which such exceptions are allowed. These include children’s marriage or higher education, medical expenses or construction of a new house.
Documents required for Voluntary Provident Fund withdrawal
You will be required to furnish the following documents for VPF withdrawal
- A cancelled cheque
- Your personal details
- Your postal address
- Your EPF account number
- Bank details where the maturity amount will be credited
Eligibility criteria for Withdrawal
- You have to stay invested for the lock-in period before you can withdraw.
- Submit a a request letter and Form-31 to your employer to apply for withdrawal from your VPF account
How to Check the Balance of VPF?
- Go to the official EPFO website.
- Go to the the ‘Our Services’ tab
- Click the ‘For Employees’ option.
- Then go to the ‘Services’ heading and click the’Member Passbook’ heading.
- Enter your UAN and password and login
- Cick the ‘View Passbook’ option under the Member ID heading.
- The EPF passbook will show your VPF account details.
EPF vs VPF vs PPF: Major Differences To Know
|Eligibility||Salaried employees||Salaried employees||Salaried and self-employed individuals|
|Contribution||Mandatory for both employee and employer (12% of basic salary + dearness allowance)||Voluntary||Voluntary|
|Contribution limit||12% of basic salary + dearness allowance||Up to 100% of basic salary + dearness allowance||₹1.5 lakh per year|
|Interest rate||Set by the Employees’ Provident Fund Organisation (EPFO) and revised annually||Same as EPF||Set by the government and revised annually|
|Tax benefits||Contributions and interest are tax-free, and the final amount is also tax-free upon withdrawal||Contributions and interest are tax-free, and the final amount is also tax-free upon withdrawal||Contributions are tax-free, interest is tax-free, and the final amount is also tax-free upon withdrawal|
|Lock-in period||5 years||5 years||15 years|
A solid retirement corpus helps you enjoy the golden years of your life without many financial hurdles. Among the various investment options out there, Voluntary Provident Fund offers a low-risk avenue with fixed returns. But at the same time, you should ensure that VPF matches your investment goals.
What are the VPS rules for withdrawal? Can I withdraw a portion of the corpus?
Voluntary PF comes with a lock-in period of five years. The whole corpus can be withdrawn at this stage, tax-free. Complete or partial withdrawal of your corpus before five years is allowed under specific circumstances. These may include educational expenses for your children, medical costs or fees incurred to build a house.
How can I check my Voluntary Provident Fund account balance?
You can check the balance in your VPF account via the following methods –
1. Download the UMANG mobile application or visit the EPFO website.
2. Give a missed call to 011 2290 1406.
3. Send SMS <EPFOHO UAN ENG> to 7738 299 899.
Is opening a VPF account a good investment decision?
VPF is a stable investment option since it has low-risk and decent return potential. Hence, it can be a wise choice if you are a risk-averse investor looking for a safe investment option.
Are VPF and PPF accounts the same?
A VPF account is an extension of your EPF account, an option meant for salaried individuals. PPF, on the other hand, can be opened by anyone in India. The interest rates also differ. While the current PPF interest rate is 7.1%, VPF offers a higher rate of 8.1%. There are several other differences, too, in the lock-in period, withdrawal rules, etc. Hence, both could work for different investment goals.
Who are eligible to invest in Voluntary Provident funds?
1. Salaried individuals working in an organisation that has been registered with the EPFO
2. Salaried individuals with an EPF account are eligible to invest in VPF
Is VPF taxable?
VPF contribution up to Rs.1.5 lakh is exempt from tax under Section 80C. Further, if your combined contribution in EPF and VPF is less than ₹2.5 lakh in a financial year, then the interest earned is also tax-free.
Can I withdraw from VPF after 5 Years?
Yes you can withdraw from VPF after 5 years.
What are the disadvantages of VPF?
VPF is has a 5 year lock-in period which makes it a low-liquidity instrument.
If you withdraw from your VPF account before 5 years, you will be liable to pay tax on the interest earned.
Can I update VPF every year?
Yes, you can update your VPF every year by writing a request to your employer. There is no limit, on the number of times you can update your VPF contribution within a year. However it’s important to remember that the maximum amount you can contribute to VPF is capped at 100% of your salary and dearness allowance.
What happens to VPF after retirement?
An EPF account matures once you retire. Since VPF is an extension of EPF, it will also mature at retirement. At maturity, the amount will be paid to you in full. However, if the account holder passes away during the tenure, the corpus will be paid to your nominee.