Voluntary Provident Fund (VPF), also known as the voluntary retirement fund, is the employee’s voluntary contribution to his provident fund account. This contribution is in addition to the employee’s 12% contribution to his employee provident fund (EPF).
The maximum contribution is 100% of his basic salary and dearness allowance. The interest rate is the same as the EPF rate.
Employers are not required to contribute to their employees’ VPF portfolios. Similarly, an employee is not required to contribute to the plan.
If an employee opts for VPF, they cannot terminate or discontinue the scheme before 5 years. The Government of India determines the voluntary retirement plan interest rate at the start of each fiscal year. Let us understand what VPF incorporates and why it is essential.
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Table of Contents
Advantages of a VPF
Because this scheme is run by the Government of India, investing in it is a safe bet. Compared to other long-term investment options offered by private organisations, the scheme does not have risks associated with investing.
Under this scheme, the interest rate is 8.50 per cent per annum. The interest earned from contributions is also tax-free.
Simple application procedure
The procedure for opening a VPF account is simple. Employees can submit the registration form to their employer’s finance team and request that they open a VPF account.
Transfer procedure is simple
Employees can easily transfer their VPF account from their previous employer to their new employer if they change jobs.
Options for early withdrawal and loans
After 5 years from the end of the fiscal year in which the first investment is made, the VPF can be partially withdrawn. You can get a loan, too, against your VPF balance between 3 and 6 years after you start investing.
If you have been unemployed for more than two months, the entire VPF amount can be withdrawn. You have the option of making a partial withdrawal for various reasons, such as a medical emergency or a business transaction.
The VPF fund is popular because the accumulated funds can get withdrawn at any time. The VPF account can be withdrawn in an unexpected financial emergency. The account can be broken for a variety of reasons, including the following:
- Medical bills for the individual and his family
- Higher education and marriage are both expensive events
- Payments for the construction of a house or the purchase of new land/house
Documents required for the establishment of a VPF account
Employees must submit the following documents to open a VPF account:
- Submit the company registration certificate with the Ministry of Finance (MoF)
- Forms 24 and 49 must be completed.
- Memorandum and articles of association should be submitted if the organisation is an ‘Sdn Bhd.’
- A detailed company profile is essential.
- The certificate of business registration must be submitted.
- Employees should check with their employer to see if additional documents are required to open a VPF account.
Eligibility for the VPF
Because the VPF scheme continues the EPF, only salaried employees receiving monthly payments in their salary accounts are qualified to invest in this scheme.
Tax advantages of VPF
The VPF account gets regarded as one of the best investment options. Employees are entitled to tax benefits of up to Rs.1.5 lakh under Section 80C of the Income Tax Act of 1961. The interest earned from these contributions is tax-free. However, if the interest rate is greater than 9.50% per annum, the amount is taxable.
Interest rate of VPF
The Indian government sets the interest rate, which is revised yearly. The interest rate for the fiscal year 2019-2020 is 8.50% per annum. The interest rate has been lessened from 8.65%, which was previously the interest rate. Investments in a VPF account are viable due to the high-interest rate and tax benefits.
A VPF is referred to as a voluntary retirement fund. It is the employee’s voluntary contribution to his or her PF account. The contribution must be more than 12%. However, the maximum contribution can be up to 100% of the basic salary plus dearness allowance. The interest rate is the same as the EPF rate.
Unlike the EPF Scheme, employers need not contribute to their employees’ voluntary provident fund portfolio. Similarly, an employee is under no obligation to contribute to this plan.
When you have chosen to contribute to a VPF, you cannot terminate or discontinue the contribution before the base tenure of 5 years. The Government of India determines the interest rate on such plans at the start of each fiscal year.
FAQs on VPF
What is the distinction between VPF and EPF?
The VPF is an extension of the EPF. To open an EPF account, a person should contribute a minimum of 12% of his basic salary and dearness allowance to the fund. It is a voluntary contribution with a limit of not more than 100% in a VPF.
Who is qualified for a VPF account?
Every employee on a company's payroll can open a VPF account.
If I change jobs, will my VPF account be affected?
Your aadhar card is linked to your VPF account. As a result, moving your account from one employer to another is hassle-free.
What is the VPF lock-in period?
Because VPF investments get deposited in employees' EPF accounts, they will have the same lock-in period as EPF contributions. If a person remains unemployed for more than two months or retires, he or she can withdraw from their VPF contributions.