Voluntary Provident Fund (VPF): Benefits, Interest Rates & How to Apply

An extension of the Employee Provident Fund, voluntary provident fund offers an employee another option of saving with tax benefits and a decent interest rate. This is an attractive way for those looking to save for the future, where one can add some retirement savings without much fuss. This article will cover the details of VPF, its benefits, applicable interest rates, and application process, hence making it easier for you to understand why you should consider investing in it.

What is a VPF?

Voluntary provident fund or VPF is an extension of retirement savings plans offered to salaried people in India. Unlike the EPF, this is an optional scheme and not an obligatory one; here employers and employees make a prescribed percentage contribution out of an employee's salary, 12% for EPF. In an EPF account, the employee is free to offer more than the 12% contribution out of the basic pay and DA of his salary into the account up to the extent of 100% of basic pay.

The amount invested in VPF attracts the same rate of interest as that of EPF and receives similar tax benefits. VPF is also highly useful for those seeking a secure investment with guaranteed returns in their retirement years.

Benefits of Voluntary Provident Fund (VPF)

• Tax Saving
  Tax saving is one of the main reasons to opt for a voluntary provident fund. Contributions to VPF are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. A maximum deduction of up to ₹1.5 lakh can be availed under this section. The interest on VPF contributions is also tax-free provided it does not exceed the threshold limit set by the government for annual contributions.
• High Interest Rate
  The interest rate charged is similar to EPF VPF. The rates will normally be higher compared with other fixed deposits or other saving schemes in the market. In the case of a financial year 2023-24, for the purpose of EPF and VPF contributions, 8.15 percent p.a. was allowed.
• Risk-Free Investment
  As this scheme is backed by the government, it in fact provides security on investment with no risk as the returns on mutual funds or even stocks in the stock exchange depend on the market and VPF offers fixed return each year as pronounced by the government.
• Long-Term Wealth Creation
  VPF will be a long-term savings vehicle that can ensure monetary security at retirement. The regular contributions into VPF are sure to build a massive corpus to help the individual meet their future financial goals and also manage expenses post-retirement. Loan and Partial Withdrawal Facility. Like EPF, VPF also offers the facility of loan or partial withdrawal in case of medical treatment, education, or housing. In some cases, the withdrawal is also tax-exempted on certain grounds.
• Ease of Contribution
  Another significant benefit of VPF is the ease in raising contributions by employees. An employee needs to inform his employer about the decision they wish to contribute a bigger portion of their salary to and the employer will thereafter withdraw the contribution from an employee's monthly salary.

Interest Rates on Voluntary Provident Fund (VPF)

Interest rates for VPF are the same as those of EPF, and the government reviews them every year. During the financial year 2023-24, EPF interest rate was declared at 8.15%. The same rate will be applicable for VPF contributions. The interest thus obtained is credited to the employee's EPF account towards the end of the financial year.

One of the major reasons why VPF has this advantage is because the rate of interest is normally better than the usual investments where one can invest money for a fixed period in fixed deposits or recurring deposits at banks. In contrast, the returns in mutual fund or the stock market go up and down; it is stable in VPF where the return is updated every year.

It may please be noted that interest upon contribution of more than ₹2.5 lakh pa in employees where employer will be making contribution to their PF account or ₹5 lakh per annum in employee's accounts where employer contribution is nil, shall have the provision of taxation for which amendment was made in the Budget of 2021.

How to Apply for Voluntary Provident Fund (VPF)

Applying for VPF is not complicated and is hassle-free. Here is what you should do step by step:

• Check Eligibility
  VPF is only provided to salaried employees who are already members of the EPF. Should you be an EPF member, you can actually choose VPF if you are paying more than what is mandatory at 12% of your basic.
• Tell Your Employer
  The first thing to do once you have taken the decision to up your contribution to the VPF is notify your employer. Most organisations have a particular form or application that you will have to fill out. You can get assistance on this from your HR or payroll department.
• Fill the VPF Form
  Your employer will provide you with the VPF application form stating the percentage or actual amount of your salary you wish to volunteer. You can even put up to 100 percent of your basic salary plus DA.
• Submit the form
  After completing the form, present it to your employer. Your employer will adjust the salary deductions going forward with the next payroll cycles. The amount you have chosen to contribute will be deducted from your monthly salary and forwarded to your EPF account as VPF.
• Verify your Contributions
  It is essential to check your VPF contributions from time to time. Most employers will ensure you receive a salary slip or an EPF passbook that will reflect your contribution. You may also view your EPF balance online by way of visiting the EPFO website or the UMANG app.
• Opt-Out or Change Contribution
  VPF is an investment facility that can be flexible; you can choose to withdraw or alter your contribution rate at the beginning of every new financial year. In contrast, with EPF, the VPF is not mandatory. Once you opt for VPF, you can withdraw from the contribution at any time by giving notice to your employer.

Who Should Invest in VPF?

VPF is a good choice for people who are searching for a safe, long-term investment option with tax benefits and higher returns than the traditional savings schemes. It is best suited for salaried employees already contributing to the EPF who would like to increase their retirement corpus without exposing themselves to the risks of the stock market.

You should invest in VPF if

• You want a secure investment for the long term before retirement.
• You look for a more interest amount as compared to general saving schemes.
• You look for Section 80C with tax deduction.
• You have less tolerance to risk and like investments that guarantee a return.

A compelling saving option for salaried employees looking at saving extra in their retirement, voluntary provident fund is one of the options that attracts one due to its numerous benefits such as tax savings, interest, and a high level of security. Therefore, long-term planning will always get a significant boost by taking up the tool that VPF presents to salaried employees in order to construct a sufficient retirement corpus which will allow one financial independence in their post-working years. It has an easy application procedure; the flexibility of contribution offers such a good investment avenue.

Related Articles:

1. Retirement Planning: What Do I Need to Know About Retirement Planning?
2. How to Plan for Retirement with a Voluntary Retirement Scheme?
3. Understanding Pension Plans – Best Pension Plan in India
4. Guide to Pension Planning: Types of Pension Schemes in India

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