Voluntary Provident Fund: VPF Benefits & How to Open Account

Learn about the advantages of the Voluntary Provident Fund (VPF) for enhanced retirement planning.
Voluntary Provident Fund
4 mins
21 December 2023

As we approach retirement age, we all want to have enough savings to live a financially secure and comfortable life. The Voluntary Provident Fund (VPF) is a great way to boost your retirement savings with flexibility and control. Unlike Employee Provident Fund (EPF), Voluntary Provident Fund (VPF) is totally voluntary, and employees can invest up to 100% of their basic salary and Dearness Allowance (DA). This article will discuss the benefits of VPF and how it can help you achieve your retirement savings goals.

What is a Voluntary Provident Fund (VPF)?

The Voluntary Provident Fund (VPF), also known as the Voluntary Retirement Fund, is an investment option available to salaried employees in India. It serves as an extension of the Employee Provident Fund (EPF). VPF allowing employees to voluntarily contribute additional funds to their Provident Fund (PF) account beyond the mandatory 12% contribution towards EPF. Employees can invest up to 100% of their Basic Salary and Dearness Allowance (DA) in the VPF.

Benefits of Voluntary Provident Fund

  1. Flexibility: Employees have the flexibility to decide the percentage of their basic salary to be contributed to VPF, but it should not be more than 100% of the basic salary and DA. This allows customisation based on individual financial goals.
  2. Loan facility: Depending on the conditions, employees may have the option to avail loans against their VPF balance, providing liquidity in times of need.
  3. Safe option for investment: As the extension of EPF, VPF is also government-backed, VPF providing secure and stable option for individuals to invest their hard-earned money. This safety net makes VPF an attractive choice, particularly for risk-averse investors seeking a reliable and trustworthy investment avenue.
  4. Disciplined savings: With contributions deducted directly from the salary, VPF promotes disciplined savings habits. This helps individuals to save the part of their income consistently.

VPF interest rate

The Indian Government decides and annually revises the interest rate for VPF. As of the 2023-24 fiscal year, the VPF interest rate stands at 8.15% per annum.

How to open a VPF account?

  • Employees need to request their employer or HR department expressing the desire to open a VPF account and allocate an additional amount from their salary.
  • Employees are required to give personal details along with the specified monthly contribution amount from their basic salary towards the VPF account.
  • A VPF account can be opened at any time.

Documents required for opening a VPF account

  • Registration certificate of his/her company with the Ministry of Finance (MoF).
  • Business Registration Certificate (Form 9 & Form D).
  • Submit Form 24 and Form 29.
  • For companies registered in Malaysia as 'Sdn Bhd', Memorandum of Association (MOA) and Articles of Association (AOA) must be summited.
  • Additional documents as per government regulations.

How to withdraw amount from a VPF account?

The fund allows partial and complete withdrawals. If withdrawn before 5 years, tax applies to the accumulated amount. Upon resignation or retirement, you will be receiving the full maturity amount which is tax free. In case of the account holder's untimely death, the nominee receives the accumulated fund in the VPF account.

Apart from these, you can also withdraw from the VPF account in case of a financial emergency.

  • Medical expenses for the depositor or his/her family members.
  • Expenses like children's education or marriage.
  • Purchase of a residential property or a purchase/construction of house.

Tax benefits available under VPF

Investing in the Voluntary Provident Fund (VPF) not only helps individuals secure their financial future but also provides attractive tax benefits. Contributions to VPF qualify for a deduction under Section 80C of the Income Tax Act, offering a maximum annual deduction of Rs. 1.5 lakh. With an Exempt-Exempt-Exempt (EEE) tax status, both the interest earned, and the maturity amount are tax-free.

But if the investment is withdrawn within 5 years, they are liable to tax.

Difference between VPF and EPF

Aspect

EPF

VPF

Opening account

Mandatory for eligible employees

Voluntary for any salaried individual (except NRIs)

Interest rate

8.15% per annum

8.15% per annum

Tax benefit

Up to Rs. 1.50 lakhs per year under Section 80C

Up to Rs. 1.50 lakhs per year under Section 80C

Period of investment

retirement or resignation

5 years or unemployment whichever is earlier

Employer contribution

12% of basic salary + DA (mandatory)

Not applicable

Employee contribution

12% of basic salary + DA (mandatory)

Voluntary, up to 100% of basic salary + DA

Partial withdrawal

Allowed for specific reasons

Allowed for specific reasons


Conclusion

The Voluntary Provident Fund is a flexible and beneficial option for those looking to boost their retirement savings. VPF offers salaried individuals a government-backed avenue for tax-efficient savings, and the potential for higher returns over the long term.

It is essential to read the benefits and drawbacks of this scheme carefully and consult with a financial advisor before making any investment decisions. However, if used wisely, VPF can be a great asset in securing your financial future.

Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.