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Voluntary Provident Fund (VPF) – Interest Rate, Benefits, Limit, Withdrawal Rules

Last Updated : 27 Oct, 2023
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What is VPF?

Voluntary Provident Fund or VPF is defined as a voluntary scheme for investment made by salaried employees over and above the Employee Provident Fund (EPF) governed and supported by the Government of India. Under VPF, employees contribute a certain percentage of their share of salary to the PF account. Employee may direct their employer to deduct an extra amount of PF over and above EPF, VPF contribution is beyond the set standard contribution of 12% of EPF which is compulsory in nature to contribute for both employee and employer, whereas under VPF neither employee nor employer is under a statutory obligation to contribute.

Key takeaways from Voluntary Provident Fund (VPF):

  • VPF is a voluntary long-term investment scheme supported by the Government of India
  • Under VPF there is no statutory obligation to contribute either to employee or employer.
  • The interest rate applicable to VPF is the same as what is applicable to EPF.

Interest Rate on VPF

The current rate of interest on VPF is 8.1% and is decided by the Ministry of labour in consultation with the Ministry of Finance.

Benefits of Voluntary Provident Fund

1. Secure Mode of Investment: VPF as is backed up by the government of India is seen as a safe investment option and, it makes it a better option rather than other investment options available. Under VPF there is surety of getting the matured value along with interest and risk is barely involved.

2. Offers Flexibility: Under VPF there is no minimum and maximum investment limit, it is on the due discretion of the employee how much he wants to invest in the VPF, this offers great flexibility in terms of investment as there is no bar on minimum investment amount.

3. Hassle-free Proceedings: Opening a VPF account is extremely simple, as the VPF is invested over and above the EPF amount and, it is linked to the EPF account already created. The employ who is willing to open a VPF account can simply approach his HR/Admin/Salary consultant and fill basic details as all the details will be already available with the HR/Admin.

4. High Rate of Return: Interest rate in VPF is similar to what employ gets in an EPF account which hovers somewhere around 8% to 8.5%, VPF offer better interest rate than saving banks account and other saving schemes available which assures the employ that he will have a sufficient corpus available with him at time of maturity.

5. Availability of Loan Against VPF: VPF account has an added advantage that when the employ is in urgent requirement of funds, he can apply for a loan against the pre deposited VPF. Some conditions are to be followed and the applicant will be made available with a loan and, in some valid case applicant can even apply for partial withdrawal.

6. Tax Benefits: Maturity proceeds received under VPF are totally exempted under the Income Tax. VPF is categorized under EEE category and the principal, interest and contribution are exempted under Income tax. However, it is to note that in case the withdrawal is made before the lock in period of 5 years no tax exemption will be available in that case. Contribution is exempted under section 80C up to a cap of 1.5 lakhs and interest is exempted till 9.5%.

7. Nominee: In case of any unfortunate event causing death of the employee, whole proceeds deposited under VPF shall be paid to the nominee who has been named in the application form.

Limit of VPF Investment

Under VPF, a maximum of 100% of Basic Salary + Dearness Allowance can be invested under VPF scheme and there is no minimum investment requirement in VPF scheme.

Documents Required For VPF Registration

Voluntary Provident Fund (VPF) registration is generally a part of your regular Provident Fund (PF) account, so you don’t need separate registration for VPF. When you join a new job or enroll in the EPF scheme, your employer will assist you with the PF and VPF registration process. However, here are the standard documents and information required for PF and VPF registration:

1. Know Your Customer (KYC) Documents: Aadhar Card, PAN Card, Bank account details (account number and IFSC code), Passport (if available), Voter ID card (if available), Address proof (utility bill, rent agreement).

2. Employee Details: Personal information, such as your name, date of birth, father’s name, and contact details, Educational qualifications, etc.

3. Nomination Details: You will need to provide details of your nominee(s), including their name, relationship, and contact information.

4. Salary and Employment Details: Your salary details, including basic pay, allowances, and deductions, Employment start date, etc.

5. Bank Account Details: Your bank account details, including the account number and IFSC code for fund transfers.

6. Photograph: Passport-sized photographs.

How to Open a VPF account?

1. Basic of all the employee should be a salaried employee and should be working in an organization recognized by EPFO and should have an active EPF account

2. First of all the employee working in an organisation should approach his HR/Admin officer about his willingness of opening a VPF account, and intimate the amount he would like to contribute in the VPF account. A form for opting for VPF is to be collected from HR/Admin officer sharing all the necessary details.

3. The VPF account can be created at any time during the year, however to maximize the returns it is suggested to open the account during the starting of financial year and once opted applicant can’t discontinue the VPF scheme during the financial year.

4. Maximum contribution under VPF scheme is 100% of basic salary + dearness allowance, and if applicant makes a withdrawal before 5 years, proceeds received from VPF account will be taxable.

5. In case the applicant wants to increase the amount of VPF in later years, he can intimate the same in writing stating his willingness to increase the contribution under VPF and the amount to his HR/ Admin officer.

6. Applicant can also check his balance of VPF anytime through EPFO website or mobile application through his UAN(Universal account number).

How to Check VPF Balance Online?

To check your Voluntary Provident Fund (VPF) balance online, following steps can be followed:

1. Visit the official website of the Employees’ Provident Fund Organisation (EPFO) for your region. The website’s URL may vary depending on your location, so you should search for the relevant EPFO website for your region.

2. Look for an option like “Member Passbook” or “Online EPF Balance” on the website. This is where you can access your VPF balance.

3. You will typically need to log in with your Universal Account Number (UAN) and password. If you haven’t registered your UAN, you should do that first through your employer.

4. Once logged in, you can view your EPF passbook, which will display your VPF balance along with other EPF details.

EPF vs VPF vs NPS

Basis

EPF

VPF

NPS

Full form

Employee Provident Fund

Voluntary Provident Fund

National Pension System

Who is Eligible

Salaried employees who are working in EPFO recognized organization

Salaried employees who have an active EPF account and are working in EPFO recognised organisations

All citizens and non resident citizens who are between the age group of 18 years to 60 years.

Required Contribution by Employer

12% of basic salary + dearness allowance

No statutory obligation on employer

Optional for Private employers.

Required Contribution by Employee

12% of basic salary + dearness allowance

As per the discretion of employee, up to 100% of basic salary + dearness allowance

10% of basic salary + dearness allowance

Investment Tenure

Till retirement or unemployment

Not less than 5 years or retirement/ unemployment

Till the age of 60.

Partial Withdrawal

Allowed only on certain conditions and subject to approval from EPFO.

Allowed only on certain conditions and subject to approval from EPFO.

Allowed for specific purpose only after three years of investment in the scheme

Available Tax Benefits

Categorized under EEE category i.e. Contribution, interest and maturity value are exempt up to certain limits and conditions

Categorized under EEE category i.e. Contribution, interest and maturity value are exempt up to certain limits and conditions

Categorized under EEE category. Tax deduction up to Rs.1.5 lakh under Section 80CCE and 80CCD(2)

Loan Availability

Allowed subject to approval from EPFO

Allowed subject to approval from EPFO

Not allowed

Frequently Asked Questions (FAQs)

Ques 1. What is the eligibility criteria for enrolling in VPF?

Ans. Any employee who is working in organized sector, who is entitled to receive salary and the organization in which he/she is working shall be recognized by EPFO and should have active EPF account.

Ques 2. What are the interest rates applicable on VPF?

Ans. Interest rates on VPF are same which are applicable on EPF, current rate of interest rates are 8.1%. Interest rates are decided by ministry of labour in consultation with ministry of finance.

Ques 3. Is there any tax saving on investment under VPF?

Ans. Yes, any investment made in form of VPF comes under section 80c of income tax act, during a financial year up to 1.5 lakh of investment can be claimed as tax saving.

Ques 4. If an employee switches his job from one employer to other is there any remedy available under VPF?

Ans. VPF account is extremely flexible and in case the employee changes his employer, in that case the VPF account will also be shifted and transferred to current employer.

Ques 5. Is there any lock in period for VPF?

Ans. VPF account has a lock in period of 5 years, after completion of 5 years employee can claim to withdraw.

Ques 6. What is the maximum limit of VPF investment?

Ans. Under VPF, a maximum of 100% of Basic Salary + Dearness Allowance can be invested under VPF scheme and there is no minimum investment requirement in VPF scheme.



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