The 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 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.
Once a contribution has been selected in VPF, it cannot be terminated or discontinued before the base tenure of 5 years has been completed. The Government of India determines the Voluntary Retirement Plan interest rate at the start of each fiscal year. Let’s get into depth to understand what voluntary provident fund incorporates and why is it essential.
The Advantages of a Voluntary Provident Fund
Safe Option
Because this scheme is run by the Government of India, investing in it is a safe bet. In comparison to other long-term investment options offered by private organisations, there are no risks associated with investing.
The high-interest rate
Under this scheme, the interest rate is 8.50 per cent per annum. The interest earned from contributions is also tax-free.
The application procedure is straightforward.
The steps for opening a VPF account is straightforward. Employees can submit the registration form to their employer’s finance team and request that they open a voluntary provident fund account.
The transfer procedure is straightforward.
Employees can easily transfer their VPF account from their previous employer to their new one if they change jobs.
Options for early withdrawal and loans
After five years from the end of the fiscal year in which the first investment is made, the PPF allows for partial withdrawal. You can get a loan, too, against your PPF balance between three and six years after you start investing.
If you have been unemployed for more than two months, you can withdraw the entire VPF amount. You also 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The VPF fund is popular because the accumulated funds can get withdrawn at any time. One can always turn to his VPF account in an unexpected financial emergency. The account can be broken for a variety of reasons, including:
- 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 (Voluntary Provident Fund)account
Employees must submit the following documents to open a Voluntary provident fund account:
- Submit the company registration certificate with the Ministry of Finance (MoF)
- Forms 24 and 49 must be completed.
- The memorandum and articles of association must get submitted if the organisation is an ‘Sdn Bhd.’
- A detailed company profile is essential.
- The certificate of business registration must get submitted.
- Employees should check with their employer to see if additional documents are required to open a VPF account.
Eligibility for the VPF (Voluntary Provident Fund)
Because the VPF scheme continues the EPF, only salaried employees receiving monthly payments in their salary accounts are qualified to invest.
A VPF provides tax advantages.
When it comes to different investment options in India, the VPF account gets regarded as one of the best. 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 as well. However, if the interest rate is greater than 9.50 per cent per annum, the amount will be taxable.
A VPF’s interest rate
The Indian government sets the interest rate, which gets revised yearly. The interest rate for the fiscal year 2019-2020 is 8.50 per cent per annum. The interest rate has been lessened from 8.65 per cent, which was previously the interest rate. Investments in a VPF account are viable due to the high-interest rate and tax benefits.
Conclusion
A Voluntary Provident Fund (VPF) also gets referred to as a Voluntary Retirement Fund (VRF). 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 Employees’ Provident Fund Scheme, employers need not contribute to their employees’ voluntary provident fund portfolio. Similarly, an employee is under no obligation to contribute to this plan.
It is vital to note that once you have chosen to contribute to a voluntary provident fund, you cannot terminate or discontinue the contribution before the base tenure of 5 years has expired. The Government of India determines the interest rate on such plans at the start of each fiscal year.
FAQs on Voluntary Provident Fund
What is the distinction between VPF and EPF?
The VPF is an extension of the EPF. To open an EPF account, a person must 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 qualifies 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 gets linked to your VPF account. As a result, moving your account from one employer to another is a breeze.
What is the VPF lock-in period?
VPF contribution 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.
