Voluntary Provident Fund

VPF or the Voluntary Provident Fund scheme is a long-term investment option that gives you higher returns along with the low risk factor involved. VPF is being managed by the Government of India and can be opted for by the employees voluntarily. In the case of an EPF scheme, only 12% of the basic salary can be contributed, but the VPF scheme enables the employees to contribute their complete basic salary to this scheme. Notably, the contributions that are made towards VPF do impact the EPF and the contributions made towards EPF do affect the VPF.

Under this scheme, the maximum contribution that can be made is up to 100% of an employee’s basic salary and D.A. however, the interest which is earned by the individual is at the same rate as that of the EPF. Furthermore, the scheme offers good tax benefits to the applicants.

Who can invest in Voluntary Provident Fund?

Employees who receive their monthly salary through a specific salary account are eligible for the Voluntary Provident Fund. Also, the VPF scheme is available for salaried people only. This scheme is an extension of the EPF.

What are the benefits of Voluntary Provident Fund?

  • Safe investment option : Since the VPF scheme is managed by the Government of India, this scheme is a risk-free investment. For long-term and safe investments many people opt for the VPF.

  • Easy to apply for scheme : To apply for the VPF account, an employee needs assistance from the HR or finance team of the organization. HR or the finance team guides the employee to request an additional contribution to the VPF by filling up a registration form. The already existing EPF account will serve as an additional VPF account.

  • Good returns on the scheme: Presently, the interest rate that an individual receives under the VPF scheme is 8.5% per annum. Under Section 80C, the contributions that are made up to 1.5 lakh per annum and the interest accumulated are exempted such that it provides higher returns in long term.

  • Easy transfer: The VPF account is very easy to transfer. The transfer happens upon the changing of jobs from one employer to another.

Features of the VPF scheme:

  • Under the VPF scheme, an employee is allowed to contribute a maximum of 100% of their basic salary and dearness allowance towards their VPF account.
  • There is no separate VPF account for any employee as VPF itself is associated with the EPF account of the employee.
  • The VPF scheme can only be availed by the salaried employees of an organization that is appropriately recognized by the EPFO.
  • Those individuals who are working in an unorganized sector or who are self-employed cannot avail of the VPF scheme.
  • It is not mandatory to contribute towards this scheme, as the name suggests this scheme is entirely voluntary basis.
  • The VPF scheme allows the employees to make partial or complete withdrawals from their VPF account however, it is to be noted that such withdrawals are subjected to tax implications

Documents that are required to open a VPF account :

To open a VPF account, Form 24 and Form 49 must be submitted. Also, a company registration certificate along with the Ministry of Finance (MoF) shall be submitted. The employee must mention the company profile in detail. Apart from it, a business registration certificate should also be submitted. Furthermore, if the organization is an 'SdnBhd', the memorandum and articles of association are needed to be submitted as well. It is also suggested that the employee must check with his/her employer if any further documents are required for a VPF account.

Tax benefits under the VPF scheme:

The VPF account is one of the most entrusted and safe investment option in India. In this scheme, the employees are eligible for tax benefits of up to Rs.1.5 lakh under the Section 80C of the Income Tax Act, 1961. Notably, the interest which is accumulated from the contributions is also exempted from the tax. The amount falls under the tax only in the case when the rate of interest is above 9.50% p.a.

Now, let’s understand the VPF (Voluntary Provident Fund) with an example :

For instance, if Raj earns Rs 30k per month (basic pay + dearness allowance) then his compulsory contribution as per the standard percentage would be Rs. 3600 (30,000 x 12%).

Furthermore, if Raj wishes to deposit Rs.6000 per month to his EPF account, then his Voluntary Provident Fund would be Rs.2400 (6000 – 3600).

Interest rate offered under the VPF scheme:

In the VPF scheme, the rate of interest which is offered to the individual is set by the Indian Government and it is revised on a yearly basis. Earlier, the rate of interest in this scheme was 8.65% and now it has been decreased to 8.1% p.a. For FY 2021-2022. It is recommended to make investments in the VPF scheme because it offers a higher rate of interest and tax benefits to the individuals which many other schemes fail to offer.

Thus, we can conclude that the Voluntary Provident Fund is a well-recognized long-term investment option for people who seek the least amount of risk and higher returns. The VPF scheme is a safe and secure investment option that offers post-retirement benefits to employees. It is a Government of India scheme, which makes it an even more trusted scheme as compared to others.