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.

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.

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 Further, funds withdrawn after 5 years are eligible for tax exemption.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.

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.

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.

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.

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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.

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.