Voluntary Provident Fund
Voluntary Provident Fund
Employee Provident Fund (EPF) offers you the luxury of saving your hard-earned money for the future with ease. Every month, a certain amount would get deducted from your income and deposited in your EPF account. However, consider the inflation rate and the cost of living by the time you retire, and perhaps, your monthly contribution may not suffice. An easily adoptable long term savings option is the Voluntary Provident Fund, or commonly known as VPF. In this article, let’s learn how to save up more with VPF for your retirement years.
What is VPF?
When it comes to Employee Provident Fund/ EPF, an employee in the private sector has 12% of their income deducted from their salary and deposited into the EPF. This EPF is typically set up by their employer, who also happens to contribute to the fund. An employee could even request their employee to deduct an additional amount that is above the basic percentage amount every month to deposit in their provident fund account. This would be known as a Voluntary Provident Fund or VPF.
This way, at the age of retirement, the amount in the account would be more significant. Therefore, the interest earned from the account would remain the same as an EPF as the long term investment in VPF is risk-free, similar to EPFs. Like other provident funds, every withdrawal from the Voluntary Provident Fund is completely tax-free post 5 years of continuous contribution. However, if the employee wishes to access their account to make a withdrawal within the first 5 years.
Rules and Guidelines
A few of the basic rules and guidelines of a VPF account are as follows.
- A VPF scheme cannot be discontinued, nor the funds in the account are withdrawn in the middle of a year.
- The responsibility of enrolling for a VPF falls on the employee who must request the same their employer.
- VPF schemes can only be availed by salaried professionals who are enrolled with the EPF scheme.
- Employers prefer their employees starting their VPF account at the start of a financial year.
- The entire maturity amount in the account will be taxable if direct tax codes come into effect.
- The risk of interest rates falling are comparatively higher with this investment as the rates are subject to change every year.
- An employee may choose to contribute 100% of their basic salary along with their dearness allowance as an investment in their VPF.
- Taxes are to be paid on the interest amount earned from an employee’s contribution towards their VPF if the funds in the account are accessed within the first 5 years.
Benefits of VPF
The following are the benefits of the Voluntary Provident Fund.
- An employee may contribute a maximum of 100% of their Basic Salary and Dearness Allowance. This is more contribution by an employee when compared to their traditional provident fund contribution of 12% of their basic salary.
- The interest rate for a Voluntary Provident Fund is equal to that of the EPF. Currently, the rate of interest for VPF is 8.65%.
Withdrawals from the VPF after 5 years of continuous contribution are entirely tax-free.
- There are income tax exemptions at every stage. This would include exemptions at the time of contribution, investment, accumulation and returns and at the time of withdrawal as well.
- Employees may access their VPF account for reasons such as marriage, house purchase, children’s education, and so on.
- The contribution to a VPF is optional. However, if an employee chooses to make a contribution, they will be required to continue the contribution throughout the financial year. This is a measure of convenience for their employer. There are no mandatory savings limits with respect to Voluntary Provident Funds.
- The contribution of the employees is entitled to a deduction under Section 80C of the Income Tax Act, 1961, subjected to a maximum cap of INR 1 Lakh.
- When an employee chooses to move to another organisation, these VPF accounts can be easily transferred from the old employer to the new one. Moreover, the benefits of the existing investments in the account would remain intact.
- In the case where the account holder expires, their accrued investment will be transferred to their nominee or their legal heir without any obstacles.
VPFs are known to be simple and hassle-free when it comes to operating it.
- An employee is only required to get in touch with their HR or Finance team in their company to register themselves for a VPF account with an Account Registration Form. Post the initial process, and their current EPF account could be converted into a VPF account. Additionally, a VPF account may be set up at any time through a running financial year.
- For employees who look for long-term capital appreciation, VPF is one of the safest investment options out there. The scheme is managed and governed by the Government of India.
- The income earned through the interest of a Voluntary Provident Fund is non-taxable until it exceeds the interest rate of 9.5%.
PPF vs VPF vs EPF
Every provident fund made by the Government aims to deal with social and financial security in various classes of society. However, here are the critical differences between Personal Provident Funds, Voluntary Provident Funds and Employee Provident Funds.
|Factors||Employee Provident Fund (EPF)||Voluntary Provident Fund (VPF)||Personal Provident Fund (PPF)|
|Users||Employees in India/ salaried individuals in the private sector||Anyone except Non-Residential Indians|
|Tax Benefit||Deduction of INR 1.5 Lakhs is applicable under Section 80C|
|Period of Investment||Up until retirement or resignation||15 years|
|Loan Available||Partial withdrawals are permitted||After 6 years of continuous contribution, 50% of the ammount may be withdrawn.|
|Employer Contribution||12%||Not Applicable|
|Employee Contribution||12%||Voluntary||Not Applicable|
|Tax on Maturity||Tax-Free||Tax-Free||Tax-Free|
VPF Withdrawal Rules
An employee’s contributions to their VPF account may be withdrawn at any given time. However, the amount will be taxed if it is withdrawn before completing 5 consecutive years starting from the day of registering the account. Fortunately, an employee may request to withdraw the amount from their VPF for either of the following reasons.
- Higher Education
- Medical treatment for self or family members
- Construction/ renovation of Home
- Home loan repayments
An employee may withdraw the funds by merely filling out Form 31 through their employer. In this Form, the information such as bank details must be submitted along with other requested documents attested by the employer. The amount would be transferred to the employee’s bank account once the request is approved.
Checking VPF Account Balance
The Employees’ Provident Fund Organisation of India offers a variety of methods to check provident fund account balances.
The Universal Account Number given to every eligible member of the employees’ provident fund does not change even when your job changes. Once the UAN is generated and upon activation, you will receive an SMS notification every month detailing you on your contribution and the balance amount of the VPF account.
Via EPF Mobile App
You may receive updates on your VPF balance after entering your registered mobile number and UAN in the EPFO Mobile App. The app could be downloaded from the official website of the EPFO. You may also use this app to activate your UAN. Moreover, the EPFO app can be used by both pensioners and employers.
Via Missed Call Service
One of the simplest ways of free-checking your VPF balance is the Missed Call method. A member is just required to give a missed call to a certain number, following which, they would receive an SMS depicting their latest balance. The number for this service is 011 2290 1406.
Via the Internet
As per this method, an employee is required to enter details such as the registered mobile number and PF number on the Know Your PF Balance page. As a result, the employee’s PF balance details would be sent to their registered mobile. However, details regarding the employer’s contribution, pension amount and the employee’s contribution separately.
An employee may check their balance amount in their VPF account via an SMS. The SMS service could be handy if one is not able to make a call from their mobile. An SMS has to be sent in the EPFOHO UAN ENG format and sent to 7738 299 899.