Voluntary Provident Fund or VPF or Voluntary Retirement Fund is a type of voluntary fund contribution from the employee towards their provident fund account. This contribution is more after the 12% of contribution by an employee towards his EPF. The maximum amount of contribution is up to 100% of his Basic Salary and dearness allowance. Moreover, the interest rates are the same as that of EPF.
The employers and employees both are under no obligation to contribute to the plan. Once the contribution is chosen in VPF, it cannot be discounted or terminated before the minimum tenure of 5 years. The interest of the Voluntary Provident Fund is decided by the Government of India at the beginning of every financial year.
Benefits of Voluntary Provident Fund
The Voluntary Provident Fund is an excellent tax saving option since it falls under the EEE category. Some of the other sizeable benefits are the following:
- Easy to Apply: In order to open a VPF account, an employee needs to approach their HR or finance team and advice them to raise a plea for an additional contribution to the VPF through a registration form.
- Higher returns: At the moment, the interest rate is 8.5% per annum under this plan. Since contributions up to 1.5 lakhs PA and interest accrued is exempted from tax under Sec 80C, resulting in higher returns
- Easily transferable: The account can be easily transferred from one employer to another when changing jobs.
- Flexibility: One of the best benefits of investing in Voluntary Provident Fund is that it can be used for reasons like marriage, house purchase, children’s education, etc
- Tax-free returns: Withdrawals after the 5-year lock-in period are completely tax-free.
Benefits at large
VPF is a lucrative investment option for salaried employees. Over and above, the mandatory EPF contribution amounting to 12% of the basic salary, the employee can choose to contribute an amount higher to increase the investment in their EPF account. If the employee opts to increase the investment, the employer is ideally under no obligation to increase their contribution. The VPF is available only to salaried employees in India.
This is considered a smart option for salaried individuals as the contribution is deducted directly from the salary of the individual, making it a hassle-free process for the employee. Furthermore, tax benefits will automatically be calculated in Form 16 given by the employer.
Summing it up
VPFs are a great way of diversifying one’s portfolio and also ensuring that one has more avenues to fall back on. Voluntary Provident Funds are an interesting option as it accelerates ones saving and if one starts it at a young age, it is even more beneficial as the number of years under one’s belt count.
VPFs are long-term options and therefore can contribute to a comfortable retirement period as the maturity amount will take care of loans, investments or whatever challenges life may throw at you at an age you would not have the energy to hustle. This goes a long way in offering peace of mind like no other.