Voluntary Provident Fund | VPF Benefits, Features & Interest Rates

Voluntary Provident Fund Interest Rates | Voluntary Provident Fund Registration | VPF Calculator | Voluntary Provident Fund Meaning

The contributions made by employees over and above the minimum investment set by the Employees’ Provident Fund Organization (EPFO) are known as Voluntary Provident Fund (VPF) Irrespective of how much the employee contributes, the employer can not contribute more than 12% of the basic salary. Many employees choose VPF because they don’t have to make any additional investments and it’s simply because the amount is subtracted directly from their salary. If you’re looking for a long-term investment option with better returns and minimal risk, the Voluntary Provident Fund (VPF) is a good choice. This scheme, which is run by the Indian government, provides tax benefits to those who apply. Read below to check the detailed information related to Voluntary Provident Fund like Highlights, Benefits, Eligibility Criteria, Interest Rates, and much more.

Voluntary Provident Fund

Voluntary Provident Fund- VPF

VPF stands for Voluntary Provident Fund and is a type of traditional provident fund savings plan. The VPF scheme, on the other hand, allows the contributor to choose the quantity of a monthly fixed contribution to the scheme. Employees are eligible to contribute up to 100% of their basic salary and dearness allowance to the plan. Employers are not required to make contributions to their employees’ VPF accounts. Employers and employees are not required to contribute to the VPF. The scheme, however, has a 5-year lock-in period. The rate of interest on VPF is set by the Indian government on an annual basis. Once a contribution has been decided in the VPF, this can be revoked or discontinued until the base tenure of 5 years has passed. The Government of India sets the interest rate for the Voluntary Retirement Plan at the start of each fiscal year.

EPF Contribution Rate

Highlights of Voluntary Provident Fund

Name Voluntary Provident Fund (VPF)
Tenure Up to retirement or resignation
Interest rate 8.5%
Investment Amount Depends on the employee
Maturity Amount Depends on the investment amount

Benefits of Voluntary Provident Fund

The VPF account is classified as Exempt-Exempt-Exempt (EEE). Employees can thus profit from tax advantages while also earning a significant amount of money over time by investing in the VPF. Some of the key benefits of the Voluntary Provident Fund are as follows:

  • High-interest rate: The VPF program has an interest rate of 8.50 percent per annum. The interest earned on the contributions is also tax-free.
  • Investing in the plan is a risk-free proposition because it is run by the Indian government. Investing in a VPF account is very safe when compared to other long-term investment choices given by private organizations.
  • The application procedure is simple: The procedure for opening a VPF account is straightforward. Employees can submit a registration form to their employer’s finance department, requesting that they start a VPF account. The existing EPF account will also be used as the VPF account.
  • The transfer process is simple: When employees move employment, they can easily transfer their VPF account from one firm to another.

Eligibility Criteria for Voluntary Provident Fund

Applicants who want to apply for the Voluntary Provident Fund must fulfill the eligibility criteria put forward by the Government of India. The eligibility criteria for Voluntary Provident Fund are as follows:

  • Only salaried employees receiving payments monthly in their salary accounts are eligible to invest in the VPF scheme, as it is an extension of the EPF.

Required Documents

While filling up the application form for Voluntary Provident Fund, some important documents will be needed by the applicants, make sure to keep them handy. The documents required for Voluntary Provident Fund are as follows:

  • The certificate of company registration from the Ministry of Finance (MoF) must be submitted.
  • Forms 24 and 49 must be completed and submitted.
  • A detailed company profile must be provided.
  • The certificate of business registration must be submitted
  • The memorandum and articles of association must be submitted if the organization is an ‘Sdn Bhd.’

VPF’s interest rate

The Indian government sets the interest rate, which is updated every year. The interest rate for FY 2019-2020 is 8.50 percent per annum. The interest rate has been reduced from 8.65 percent, which was the prior rate. Because of the high rate of interest and tax benefits, investing in a VPF account is a realistic option. The following table compares the interest rates of the PPF and the VPF:

Financial Year PPF rate of interest p.a.(%) VPF rate of interest p.a.(%)
2019-2020 7.10 8.5
2018-2019 7.6 to 8 8.65
2017-2018 7.6 to 8 8.55
2016-2017 8 to 8.1 8.8
2015-2016 8.7 8.8
2014-2015 8.7 8.75
2013-2014 8.7 8.75

VPF Tax Benefits

The VPF account is regarded as one of the greatest investing alternatives available in India. Employees are eligible for tax benefits of up to Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961. The interest earned on these contributions is also tax-free. The sum will be taxable if the rate of interest is greater than 9.50 percent per annum.

How to Withdraw Money from a VPF Account

The fund allows partial withdrawals in the form of loans, as well as full withdrawals. If the withdrawal occurs before the 5-year minimum term, the accrued maturity amount will be subject to tax. The ultimate maturity amount is paid to the employee when he resigns or retires from his job. The candidate can inherit the accumulated funds in the VPF account in the event of the account holder’s untimely death. The VPF fund is popular because the money accumulated can be withdrawn at any moment. In the event of an unanticipated financial emergency, one can always rely on his VPF account. The account can be hacked for a variety of reasons, including:

  • Medical bills for the man and his family are paid.
  • Payments for the construction of a house or the acquisition of additional land or a house
  • Higher education and marriage are both expensive experiences.

Maximum and Minimum investment amount in a VPF

There is no maximum or minimum VPF limit when it comes to investment. Your monthly donations determine the same. You can contribute as much as 100% of your monthly income (salary + dearness allowance) to the VPF. It’s important to remember that your company isn’t required to contribute to your VPF account. As a result, the money in your voluntary PF account is directly proportional to your monthly contributions and the income earned throughout the investment.

VPF’s Rules and Regulations

The following are the VPF account’s rules and regulations:

  • Employees are not required to contribute to a VPF account.
  • Employees are authorized to contribute 100% of their basic income and dearness allowance to a VPF account, as opposed to an EPF account.
  • At the moment of resignation or retirement, the entire sum available at maturity can be withdrawn. Individuals can also transfer their VPF funds from one employer to another. If the account holder dies, the total amount accumulated will be distributed to the legal heir or designee.
  • Individuals can start a VPF account at any point during the fiscal year. For five years, investments made into the account cannot be stopped.
  • The rate of interest on a VPF account is set by the Indian government at the beginning of the financial year. When compared to past years, the rate could rise or fall.
  • Individuals with an EPF account who work for companies that are part of the Employees’ Provident Fund Organization (EPFO) are eligible to register a VPF account. Individuals who work in the unorganized sector are not eligible to join the VPF.
  • The VPF account can be used to make partial withdrawals in the form of loans. The withdrawn amount is taxed if it is withdrawn before the maturity term.

FAQ’s

What are the differences between VPF and EPF?

The VPF is an extension of the EPF. A person is required to contribute 12 percent of his Basic Salary and Dearness Allowance to an EPF account. It is a voluntary contribution with a 100 percent maximum limit in a VPF.

Who can open a VPF account and why?

Employees on the payroll of a corporation are entitled to open a VPF account.

How much money may I take out of my VPF account as a loan?

Partial and total withdrawals of the funds accumulated in the VPF account are both available. People who change employment are more likely to break their voluntary pf accounts and withdraw their funds. However, if such an action is taken before the account has been open for 5 years, the accrued funds will be liable to taxation.

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