VPF is a type of regular provident fund scheme under which a depositor can maintain an explicit portion of his/her provident fund voluntarily. As replicated by the name of this scheme, any employee who wishes to avail the VPF scheme is entitled to contribute a portion of his earning /salary towards the conventional Provident fund.
This contribution should ideally be over and above the PF limit of 12%; however, he/she is not bound to contribute any specific amount towards the VPF account. The employee can contribute the full amount of their basic salary as well as DA. The interest offered on VPF is as per the EPF scheme and the interest earned is credited to the employee’s EPF account. Since, the VPF account is linked to the employee’s EPF account only, having an EPF account is mandatory in order to invest in VPF.
Features of VPF
- Employees are allowed to contribute a maximum of 100% of their basic salary (along with the Dearness Allowance) towards their VPF Account
- VPF is basically a subset of EPF (Employee Provident Fund) account with the only difference being the salary-contribution proportion i.e. the applicable 12% for that applies to the EPF account. There is no separate account for VPF
- The scheme can be availed only by salaried employees who are working in any organization duly recognized by the Employees’ Provident Fund Organization of India
- Self-employed individuals or individuals working in the unorganized sectors cannot opt for this scheme
- The enrollment under this scheme is completely on a voluntary basis and there is no obligation for the employees to contribute towards VPF
- The maturity term or lock-in period is for 5 years and in between the investments cannot be withdrawn before the base tenure is completed
- Ideally, it is advisable to start a voluntary provident fund scheme at the beginning of the financial year; this helps in better tax forecasting & financial planning for both employee and employer
- The interest rates are regulated by the government of India and are announced in the annual budget of every financial year, implying that with time, the rates can fluctuate either way
- Partial withdrawals such as loans are allowed in VPF accounts. Also, complete withdrawals are permissible, however, subject to tax implications
- The employee is entitled to the final maturity amount at the time of resignation or retirement from employment. This amount can be transferred as well from one employer to the new one as similar in case of EPF schemes
- Loans or Partial withdrawals are permitted, however subject to the purpose and discretion of the regulatory body. Also in case the same is withdrawn prior to the minimum deposit period of 5 years, it will be is to a tax deduction
Benefits of Voluntary Provident Fund
VPF account is not only a seamless & safe investment option but also enables the salaried class with savings for the long term which can be liquidated in case of any financial exigency without any loss to the capital. Apart from its other unmatched benefits, the supplementary appeal is the high interest rate offered on it.
- The Investments under VPF are made from the pre-tax income of the employer
- The Employees’ contributions are entitled to deduction under section 80C of IT Act, 1961, subject to the maximum cap of Rs.1.5 Lakh
- The interest income is non-taxable until the interest rate exceeds 8.50%
- The Redemption is also tax-free until and unless the same is not withdrawn prior to the maturity period of 5 years
- VPF is considered to be one of the safest investment options especially for those who are looking for long term capital appreciation. The VPF scheme is managed under the mandate of the Government of India and thus the trust and faith are usually coupled with long term investment options as offered by many private players
- Under the VPF scheme, one can expect better yield, since the interest rate is high and regulated by the government of India
- The investment amount under the VPF can be withdrawn at the time of resignation or retirement from the current employment. This makes VPF a long term investments solution with the benefit of post retirement financial planning
- The Employee’s investment towards the VPF account is entitled to Income Tax deduction benefit till Rs.1 lakh
- In the case of job change, VPF accounts can be easily transferred from one employer to the new employer
- In case of an unfortunate demise of the account holder, the accrued investment will be paid in whole, to the nominee or the legal heir
How to Open a VPF Account
Under VPF, an employee can contribute beyond the normal mandatory deduction of 12% of his/her salary. This 12% stands for the amount which their employer deducts every month from basic salary toward the Employees’ Provident Fund. VPF scheme is available only for resident salaried individuals without any defined obligation.
- To subscribe under VPF, an employee must ask his/her employer in writing for additional deduction from the salary
- A VPF account can be opened at any time within the running financial year
- The requisite details to be provided to the company include personal information and an amount that is to be contributed monthly from Basic salary and DA
- One cannot discontinue the investment under VPF in between the financial year
- In case money is withdrawn within the first 5 years of the scheme, then the interest earned will be taxable
- Usually, employers encourage their employees to start investing in the VPF scheme at the beginning of the financial year
- It must be noted that the maximum amount that can be contributed towards VPF is 100% of the monthly Basic Salary component and monthly Dearness Allowance only
Who should Invest in VPF
- VPF account is ideally suited for all such salaried individuals who are looking for investment in long-term financial product and reduce their tax liability
- VPF accounts are considered to be ideal for those people who are approaching their retirement and need a safe and robust pension fund option
Interest Rate on VPF
- The interest on VPF for the financial year ending on 31 March 2020 has been fixed at 8.5%
- Every year the rates of interest on PF accumulations in members’ accounts are reviewed by the Employees Provident Fund Organization
- Interest on VPF shall be credited to the member’s account on monthly running balances with effect from the last day of each year in the following manner:
- On the credit amount of a member on the last day of the preceding year, less any sums withdrawn during the current year—interest for twelve months will be credited
- On sums withdrawn during the current year— interest from the beginning of the current year up to the last day of the month preceding the month of withdrawal shall be credited
- On all the sums credited to the member’s account after the last day of the preceding year—interest from the 1st day of the month succeeding the month of credit to the end of the current year
- The total amount of interest shall be rounded to the nearest whole rupee (fifty paisa counting as the next higher rupee)
- In the case of a claim for the refund, interest shall be payable up to the end of the month preceding the date on which the final payment is authorized, irrespective of the date of receipt of the claim from the claimant concerned
- Interest shall not be credited to the account of a member if he/she informs the commissioner in writing that he/she does not wish to receive it. If, however, the member subsequently asks for interest, it shall be credited to his account with effect from the first day of the period of currency in which he makes a request
- Interest shall not be credited to the account of a member from the date on which it has become an inoperative Account. It must be noted that an account becomes inoperative when it has completed the tenure of 15 years (even after extension) i.e. when the account holder attains the age of 58 years and has not withdrawn EPF balance
How to Enroll for Voluntary Provident Fund
A VPF account is basically the subset of the mandatory Employee Provident Fund account for the salaried employees and can easily be enrolled by requesting the concerned organization finance or HR team. The VPF application form captures basic details of the employees with the instruction to debit a particular percentage of the amount from the basic salary and dearness allowance per month as VPF contribution. Additionally, it is mandatory for the Employer to get registered with the EPFO office in order to provide the EPF & VPF facilities to its concerned employees.
Documents Required for VPF Enrolment by the Company
For the purpose of registration, the employer needs to submit the below-mentioned documents for registration-
- A detailed company profile
- Business Registration Certificate (Form 9 & Form D)
- MOF- Company Registration Certificate Forms 24 & 49
- In case of ‘Sdn Bhd’- MOA & AOA
- Any other documents required; additionally as per government regulations
VPF Withdrawal Process
The investments made under the Voluntary Provident Fund have gained huge popularity amongst the service class. The accumulated money in the VPF account can be withdrawn in the event of any unexpected and urgent financial emergency, this is subject to a few conditions.
A depositor can withdraw their VPF amount for a various reasons, such as-
- Towards any medical expenses for the treatments of either the depositor and/or his/her family member
- Family expenses such as children’s higher education or marriage
- Towards the purchase/construction of a house or any residential plot
- Repayment of a running home loan
Eligibility Criteria for VPF Withdrawal
- To be able to apply for the withdrawal of VPF balance without being liable for any proportionate tax deductions, your VPF account must have completed at least five years of existence
- The withdrawal of funds from the VPF account can be made by the employee by submitting a request letter and Form-31 to his/her respective employer
Documents Required for VPF Withdrawal
An employee must furnish the following documents while applying for VPF withdrawal-
- Personal details of the employee
- Employee’s postal address
- Employee’s EPF account number
- Bank details where the maturity/ advance proceeds shall be credited
- A cancelled cheque
These documents must be submitted and later on attested by the concerned employer.
Difference between PPF, EPF and VPF
Even though all the three types of investment options offered by the government are meant to deal with the social and financial security of various classes of people, however, there are various differences between them-
|Features||Public Provident Fund||Employee Provident Fund||Voluntary Provident Fund|
|Eligibility||Any Indian Resident, except NRIs||Any Employed Indian Resident||Any Employed Indian Resident|
|Period of Investment||15 years||Up to retirement or resignation, whichever is earlier||Up to retirement or resignation, whichever is earlier|
|Employee Contribution on Basic + DA||N.A||12% of Basic salary||Voluntary (Upto 100%)|
|Employer Contribution||N.A||12% of Basic salary||N.A|
|Taxation on Maturity Returns||None||Tax Free||None|
|Tax Rebate||As per section 80C||As per section 80C||As per section 80C|
|Maximum Loan amount||50% after 6 years||Partial withdrawals are permitted||Partial withdrawals are permitted|
Ques: Who can open a VPF account?
Ans: Any employee who has an EPF account can apply for opening a VPF account.
Ques: How can I open a VPF account?
Ans: In order to open a VPF account, you must request the concerned HR person in your workplace and ask him/her for an application. You must submit the application along with the required documents to the HR.
Ques: What will happen to my VPF account after I change my job?
Ans: Since your VPF account is linked to your Aadhaar, it will be easily transferred to your new employer as you switch jobs.
Ques: When can I apply for withdrawal of my VPF balance?
Ans: You can apply for withdrawal of your VPF balance after completing 5 years of your service. If you wish to withdraw your balance before the stated time period, you will be liable for tax deductions.
Ques: What is the current interest rate on VPF?
Ans: As of the financial year ending on 31 March 2020, the interest rate on VPF is 8.5%.