Voluntary Provident Fund (VPF) – Features, Rules and Guidelines
Many employees might not be aware of Voluntary Provident Fund (VPF). VPF is over and above their EPF where employees can contribute and expect higher and safe returns. This works as one of the best retirement tools. What is Voluntary Provident Fund (VPF)? What are the features of Voluntary Provident Fund (VPF)? What are VPF Rules and Guidelines published in 2018-19? Does VPF Score high compared to PPF? What are some of the FAQs about VPF?
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What is Voluntary Provident Fund (VPF)?
As the name suggests, VPF is a voluntary contribution from the employee towards his provident fund. This contribution would be over and above the contribution of 12% towards EPF. The maximum limit of contribution is up to 100% of the basic salary and dearness allowance. Basically, a VPF is an extension of EPF, but there is no pressure either for the employee or for the employer to contribute to this fund.
Features of Voluntary Provident Fund (VPF)
The key features of VPF are:
1) The option of a VPF is available to only those who all salaried individuals and receive monthly salary through a specific salary account. Self-employed individuals and people working in the unorganized sectors cannot open VPF account.
2) The account comes with a minimum tenure of 5 years. It can be opened at any time throughout the financial year.
3) Once the contribution in VPF is chosen, it cannot be withdrawn before a minimum tenure of 5 years.
4) The amount contributed in VPF is eligible for the tax-exemption u/s 80C of the Income Tax Act, 1961.
5) The government, at the beginning of each financial year decides the interest rate of the VPF.
6) If you are changing the job, the account can be transferred from one employer to another without any hassles.
7) The scheme of VPF allows partial withdrawals of the fund in the form of the loan and also the possibility of complete withdrawal. If the withdrawal happens before the minimum 5-year tenure, tax is applicable on the accumulated maturity amount.
8) The investment in VPF comes with the EEE (exempt-exempt-exempt) benefit, i.e. exempt on contribution, interest is exempted and the maturity amount is also exempted.
9) At the time of the untimely death of the employee, then nominee can get the possession of the VPF account.
What are VPF Rules and guidelines?
Last year in 2018, there were several rules that came up, let us look at these rules
1) Once you opt for VPF, you cannot discontinue in the middle of the financial year
2) If you withdraw VPF before 5 year tenure, your entire interest received is taxable
3) Opening VPF can be done employee in consultation with the employer.
4) Interest rate in VPF is fixed during the financial year and can change every year.
How VPF scores high compared to PPF?
PPF i.e. Public Provident Fund is also a best retirement option. Here are the few pointers on how VPF is better than PPF (VPF Vs EPF).
1) VPF offers better interest rates than PPF. Currently, PPF is giving a return of 7.6%, while investing in VPF will fetch you around 8.65%. An analysis of interest rates proves that over the time, the gaps between the two interest rates have broadened and EPF has always provided better interest rates than PPF. It provides the same tax benefits as PPF.
2) VPF is a debt instrument, but safer than PPF as it is backed by Government securities.
3) Investing in VPF is easier. For investing in PPF, you have to move to the Post Office once in a while or invest your time to operate the account online. But, for making investment in VPF scheme, you just need to inform your company Accounts Department and a definite amount will be automatically deducted from your salary. You don’t have to do anything until the job change. This is like SIP in the mutual fund which ensures planned and systematic investment.
4) The amount invested in VPF can be withdrawn anytime (after the minimum period of 5 years). In case of unforeseen contingencies like illness, accidents or cost-intensive events like marriage or higher education of children. However, you cannot close PPF before 15 year tenure while partial withdrawals are allowed with certain terms and conditions. So if you compare VPF Vs PPF, VPF scores high in terms of withdrawal options.
Some of the FAQs about Voluntary Provident Fund (VPF)?
1) What is the interest rate of Voluntary Provident Fund (VPF)?
VPF rates are fixed by Govt of India every year. Voluntary Provident Fund interest rate 2017-18 was 8.55%. The current VPF interest rate for FY2018-19 is 8.65%.
2) Can business men invest in VPF?
VPF is meant for salaried employees only and business men cannot invest
3) What is the income tax benefits available for VPF?
VPF is EEE. a) Whatever you invest every year can be claimed as an income exemption u/s 80C upto Rs 1.5 Lakhs b) Whatever interest received is exempted from tax c) The maturity amount is tax free.
4) How VPF scores high when it comes withdrawals?
In VPF you can go for partial withdrawals in the form of loan. However, you can also withdraw partial / full withdrawal before 5 years. In case of a full withdrawal before 5 years, the maturity amount is taxable.
5) Is it suitable for Young investors?
Generally young investors need to invest more in equity and less in debt. Hence VPF may not suit them at such young age.
6) To whom VPF is best suitable?
VPF is a very good investment option for people with higher age and who want to increase their debt portion by reducing equity portion. They can do this by increasing their VPF contribution and reducing fresh equity investment.
7) Is there any VPF Calculator in 2019 to calculate the amount to be invested?
There is no calculator required in excel. Based on your basic + DA, you can check with your accounts department / payroll division how much VPF you can contribute.
8) If I change job, will my employer allow to transfer my VPF?
You need to ensure that your Aadhaar card is linked to your VPF account. Then the process of shifting VPF to a new employer is simple.
9) How to check VPF Balance?
VPF contribution goes into the EPF fund only. You can check VPF Balance the same way as you check EPF Balance. Here is the process to check VPF balance
i) Missed call to check VPF Balance – Give a missed call on 011 22 901 406 to check your balance.
ii) SMS Option to check VPF Balance – Send EPFOHO UAN <language choice> to 7738299899
iii) Checking EPF Balance Online – Login using your credentials on EPF portal here.
iv) Umang App for VPF balance – Your UAN and Aadhaar number needs to be linked for checking balance.
v) Mobile App – From the installed App select “Member” and then select “Balance/passbook” and enter your UAN and mobile number.
Conclusion: VPF is a great investment option for the salaried individuals who are looking for long-term investments or for retirement purpose. The amount invested every month becomes robust and prove to be very handy at the time of retirement and its high interest rates is like cherry on the cake.
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Suresh KP
Voluntary Provident Fund (VPF) – Features, Rules and Guidelines
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Great Article. It’s really informative and helpful. keep posting with the latest updates. Thanks for sharing.
What happens to My VPF account when i am relocating abroad for 3 months and will be back to India after 3 months.
Thanks for the insights. One query. PPF is also guarenteed by government right. Is it not Safe? I have PPF account with a Private bank. Assume if it goes bankrupt what will happen to my PPF amount. Request your guidance
PPF is backed up by Govt of India, hence they declare interest rates every quarter through small saving schem interest rates. It is nothing to do with bank. They are only intermediaries.
Thanks a lot. I had this question running through my mind for a long term. Will 1 Lac for FD insurance rule applies to this as well. Your reply cleared my doubt. Once again thanks
state govt emplyee is eligible to apply for vpf
If I opt for VPN, continue upto couple of months. Then I lose job, move abroad. Can Close account. Will I get tds benefits, if withdraw within 5 years