Should You Invest In a Voluntary Provident Fund?

Thu, 02 Sep 2021 05:26:05 +0000

Voluntary Provident Fund (VPF) is an extension of EPF, employee provident fund. As the name suggests, an employee can voluntarily decide to contribute to this fund apart from his/her regular EPF account. This contribution will be over and above the regular monthly EPF contribution from their salaries. Every employee contributes 12% of their basic salary and if they decide to contribute to VPF it would be separate from their EPF contribution. It carries the same interest rate as EPF, i.e. 8.5%.

This scheme is for people who already have an EPF account. Let’s dive deep to get an insight into Voluntary Provident Fund (VPF).

Why is VPF So Attractive?

Among the many options a salaried person has for saving money, the Employee Provident Fund gives the highest interest rate of 8.5 %. The VPF gives the same interest rate as EPF. By taking VPF, anyone can voluntarily contribute to their EPF account and allow their deposit to grow with an interest rate of 8.5 %.

Now, you must be thinking about how much an individual can contribute to VPF? one can contribute to VPF as much as they want and this could extend up to 100% of the basic salary and dearness allowance.

What are the Advantages Of VPF?

It is better than any other saving scheme as it offers an interest rate of 8.5 %, more than any other government-guaranteed saving instrument.
It is tax-free, the same as EPF.
Contribution up to 1.5 lakhs in a year and the interest incurred does not come under the tax.
EPF is considered a risk free and high return saving scheme. The VPF is also the same.

What Do You Need to Do For Opening a VPF?

Opening VPF is easy. The employee has to approach the organization and submit an application for additional contribution in VPF. After that, the employee has to fill a registration form. The extra contribution will get deposited in the same EPF account.

How Can You Exit From VPF?

Just EPF, VPF also has terms and conditions for the amount withdrawing. The terms and conditions for exit from VPF are:

The account also has a locking period. Withdrawing of the amount within five years of account opening will attract income tax.
After the employee resigns or retires, the investor receives the maturity amount. In case of the untimely death of the investor, the nominee gets the accumulated corpus.
Just like EPF, VPF is also a future saving plan, however, in an emergency, premature withdrawal of the amount is possible. The investor can partially withdraw from VPF to address the exceptional situation, such as higher education, medical emergency, children marriage, house purchase, home renovation. You can read this article https://www.thebuyt.com/can-you-pre-maturely-withdraw-money-from-epf-account/.

Points to Note About VPF

The employer’s contribution in EPF will remain the same, i.e. 12%.
The investor could neither terminate nor discontinue the account before the five-year tenure.

Conclusion – VPF is a safe investment option for those looking for a higher interest rate on their saving. The interest rate of EPF/VPF is the highest among all saving schemes. Even the mutual fund does not offer such a lucrative interest rate.

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Will the Tax on Increased EPF Contribution Impact You and How Does VPF Works?

Fri, 12 Mar 2021 13:10:04 +0000

The BuyT Desk

The government is planning to impose a tax on the Employee Provident Fund contribution. If one makes a contribution of more than Rs 2.5 lakh annually in their Employee Provident Fund (EPF), the interest earned on contribution over and above Rs 2.5 Lakh will be taxed. So does that mean that EPF has lost its tax-free charm? As compared to other investment Employee Provident Fund still remains to be getting a higher interest as compared to any other small saving investment or the banks fixed deposits. Interest on EPF at present is 8.50% and Employee Provident Fund Organisation has also recommended the government to maintain the same interest for the FY-21-22 as well. The tax on increased contribution will impact high salary earners who could contribute more to their EPF. Government is clear if you can contribute more than Rs 2.5 Lakh in a year then you can very well pay tax on your increased contribution.

How can one increase their contribution to EPF?

Voluntary Provident Fund (VPF) is the answer. If you want to invest more in your employee provident fund then you can do it through the VPF. An employee’s PF contribution can not exceed more than 12 % of his/her basic salary and DA. The employer also contributes exactly the same i.e 12%. However, you can increase your contribution through VPF (Voluntary Provident Fund). If an employee wants to increase his/her contribution to more than 12% of their basic then they can do so by opting for VPF. An employee contribution can go up to 100% of his /her salary through VPF.

How to start VPF?

Employees will have to contact the HR of their company to take advantage of the Voluntary Provident Fund. He/She has to inform the HR department of their respective company requesting them to increase their contribution to EPF. If the company offers VPF service, HR will complete the further process according to the company’s policy. The VPF is usually attached to the employee’s existing EPF account. It can be selected at the beginning of the financial year. The contribution of VPF can be revised every year.

How does VPF work?

– The interest in VPF is the same as what you get on your EPF.

– VPF also gets tax exemption under section 80C of the income tax act. The investment made in the VPF account also comes in EEE category. In this, the money received on completion of investment, interest and maturity period is completely tax-free.

– VPF passbook can be viewed online. Also, a claim can be made online for withdrawal.

– VPF account also has a lock-in period, which is till the retirement or resignation of the employee.

– For the partial withdrawal of the amount from the VPF account, it is necessary for the account holder to do a job for 5 years, otherwise, the tax will be deducted.

– The entire amount of VPF can be withdrawn only on retirement.

– VPF funds can also be transferred like EPF if you change jobs.

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