Voluntary Provident Fund – Eligibility, Interest Rates & Benefits
Voluntary Provident Fund is an ideal investment option if your risk appetite is low and you want to earn high interest as well.
If you are keen to know more about the VPF, its eligibility, benefits, then keep reading.
What Is VPF?
If you are browsing the internet for “VPF meaning”, here's your answer -
Voluntary Provident Fund is a conventional provident fund savings scheme. A depositor determines a monthly fixed amount to contribute to this scheme.
Unlike the Employee Provident Fund, this does not include a mandatory contribution of 12%. The maximum VPF contribution is 100% of the employee's basic income and dearness allowance.
What Is the Voluntary Provident Fund Interest Rate?
The VPF interest rate in 2021 is 8.5%.
The table below specifies the VPF interest rate from 2013 to 2021.
VPF Interest Rate
What Are the Important VPF Withdrawal Rules You Need to Remember?
The lock-in period of a VPF account is 5 years.
Note that the government allows for partial or complete withdrawal before the maturity of 5 years. However, if you withdraw funds before the maturity of 5 years, the total accumulated contribution is taxable.
You can withdraw funds from VPF under the following circumstances -
- To finance high-ticket expenses of a child's higher education or marriage.
- Payments for medical expenses for you or your family member.
- To construct or purchase a new house or land.
However, if you retire or resign, you receive the entire accumulated savings. Further, funds withdrawn after 5 years are eligible for tax exemption. In case of the untimely demise of the account holder, the appointed nominee receives the accumulated fund.
What to Know About VPF Eligibility?
Voluntary Provident Fund is an extension of Employee Provident Fund. Therefore, salaried employees having an EPF account qualify for VPF contribution. Therefore, individuals working in an unorganised sector are not eligible to contribute to the same.
What Are the Documents Required to Open a VPF Account?
Keep these following essential documents handy if you plan for voluntary PF contribution-
- Form 49 and Form 24.
- A company registration certificate with the Ministry of Finance.
- SDN BHD organisations must submit the articles of association and memorandum.
- Company's registration certificate.
- Detailed profile of the organisation.
As an employee, inform your employer about your wish to increase the EPF contribution. Your existing EPF account will then be used for VPF contribution.
How to Calculate VPF Interest Income?
Your total Voluntary Provident Fund interest in a year will be a sum of your monthly interest incomes from it.
Divide the annual interest rate by 1200 and then multiply it by the monthly opening balance to get your monthly interest income. Please note that the opening balance is zero in the first month.
To understand it, let's look at a simple example -
You joined an organisation from 1st April 2021 for a salary of ₹30,000. Your employer contributes 12% of your salary to your EPF account. However, you decide to make an additional contribution to VPF. Accordingly, your employer contributes 3.67% of ₹15,000 to your EPF account.
Considering the current VPF interest rate of 8.5%, the calculation of VPF interest in 2021-2022 will be as follows -
Months (FY 2021-2022)
Monthly Credited Balance
Monthly Interest Income
Total Interest Earned
Therefore, you earned a total interest of ₹3,062 on your EPF account. Moreover, you contributed an additional payment of 8% for your VPF scheme.
Also, VPF is an extension of the EPF account. Therefore, the total interest of EPF is also equal to ₹3,062. You may also maximise the percentage of VPF contribution for more savings for your retirement.
What Are the VPF Tax Benefits?
According to Section 80C of the Income Tax Act 1961, you can enjoy a VPF tax exemption on the interest earned from this scheme. Eligible employees qualify for an annual tax deduction of up to ₹1,50,000. Accordingly, experts suggest that your annual savings on taxes will be equal to ₹46,800.
However, if the interest rate is above 9.5% per year, the interest earned on VPF contribution is taxable.
What Is the Process of VPF Withdrawal?
As an employee, collect Form 31 from the HR team. You can log in with your UAN or Universal Account Number and password to the EPFO member portal to apply for withdrawal online.
You can also download the same online.
Take a printout and fill it in with data, including but not limited to -
- Contact number
- Account number of Provident Fund
- Monthly basic wages
Attach the form with supporting documents and submit it to your nearest EPFO office.
What Are the Top 3 Advantages of VPF Contribution?
As a VPF account holder, you can enjoy the following benefits -
- Simple Application Procedure – You don't need to hold a separate VPF account. Approach your HR or Finance team for an additional contribution in VPF. Accordingly, the respective department will deduct a particular monthly amount from your salary.
- Transfer Funds Easily – VPF accounts are easily transferable from one employer to another. This means the funds already accumulated from a previous employer remains unchanged.
- Safe and Secure – The Government of India manages this scheme. It guarantees to return the accumulated fund along with the interest income. Hence, it is a safe and secured investment compared to other options offered by private financial institutions.
Investment in a Voluntary Provident Fund is a viable option to save a sizable fund and secure financial independence after your retirement. Therefore, keep the documents handy and vital pointers in mind to avoid last-minute inconvenience if you apply for the same.