Employee’s Provident Fund (EPF) is a government-backed investment cum retirement planning scheme. The employees working in eligible organisations should compulsorily contribute a minimum of 12% of their basic salary on a month-on-month basis. The employer as well contributes with a matching amount. We have covered the following in this article:
PF Updates
The EPFO gives an interest rate of 8.25%p.a. for FY 2024-25 and FY 2023-24 to subscribers of the Employee Provident Fund (EPF).
What is VPF?
Voluntary Provident Fund (VPF) is the contributions made by the employees that are over and above the minimum contribution set by the Employees’ Provident Fund Organisation (EPFO). However, the employer will not contribute more than 12% of the basic salary, regardless of how much the employee contributes. Many employees opt for VPF as they don’t have to make any other investments and its easy as the amount is directly deducted from their salary.
What is the interest offered for VPF contribution?
The VPF contributions too earn the same returns that the employee’s and employer’s contributions earn. It is for this reason that VPF is considered a very attractive option to invest in. The current interest offered on VPF contributions is 8.25%, which is much higher than that of the Public Provident Fund (PPF). The Government of India, depending on various factors, periodically updates the interest rate offered of EPF.
Are VPF contributions covered under Section 80C?
VPF contributions made towards the EPF accounts are eligible for tax deductions under the provisions of Section 80C of the Income Tax Act, 1951. Hence, you can contribute as much as you want but the tax deductions available to the taxpayers is restricted to Rs 1,50,000 a year and one can save up to Rs 46,800 a year in taxes.
Lock-in period of VPF contributions
Since VPF contributions are deposited in the EPF accounts of employees, the VPF contributions too will have the same lock-in period as that of the EPF. One can withdraw from their VPF contributions if he or she is unemployed for more than two months or when they retire.
How to start making VPF contributions?
Making VPF contributions is very simple and straightforward. Like PPF, you don’t need to open an account with a registered bank. All you need is to inform your employer that you are willing to increase your EPF contribution. The employer will then deduct the sum that you wish to invest as VPF from your salary. It is for this reason that VPF is a much better tax-saving option as it offers an attractive rate of returns and is deducted directly from the salary.
Your investment is absolutely safe as the sovereign guarantees back them. What’s more? The EPF account is transferable across all eligible employers and you need to inform your new employer that you are willing to make VPF contributions as well on a job change.
Difference between PF and VPF
| Basis | PF | VPF |
| Eligibility | Any Resident Indian | Any Resident Employed Individual |
| Tenure | Minimum 15 years | Up to retirement/resignation |
| Taxation of returns | None | Tax Free |
| Tax Deduction | As per section 80C | As per section 80C |
| Maturity | Can be extended for indefinite number of 5 year periods | Can transfer amount to new company till retirement |
Voluntary Provident Fund is a great option as it offers guaranteed returns and it is deducted directly from the salary. The employees don’t have to look at other tax-saving investment options as VPF itself offers tax deductions, considering they are willing to wait until the lock-in period is over.
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