What Is Voluntary Provident Fund?

Introduction

A Voluntary Provident Fund (VPF) is a savings scheme offered by some employers in addition to the mandatory Employee Provident Fund (EPF) scheme. While the EPF scheme is mandatory for all establishments with 20 or more employees, the VPF scheme is optional and can be offered by employers to their employees.

The VPF scheme allows employees to contribute an additional amount over and above their mandatory EPF contribution. The contribution limit for the VPF scheme is currently 100% of the employee’s salary, subject to a maximum of Rs. 1,50,00 per year.

The VPF scheme offers the same tax benefits as the EPF scheme. The employee’s contribution to the VPF scheme is eligible for income tax deduction under Section 80CCD(1) of the Income Tax Act, up to a maximum of Rs. 1,50,00 per year. The employer’s contribution to both the EPF and VPF schemes is also eligible for income tax deduction under Section 36(1)(iii) of the Income Tax Act.

The VPF scheme is managed by the same authority as the EPF scheme, i.e., the Employees’ Provident Fund Organization (EPFO). The interest rate on the VPF scheme is currently 8.1% per annum, which is the same as the interest rate on the EPF scheme.

Who can invest in Voluntary Provident Fund?

The Voluntary Provident Fund (VPF) scheme is available to all employees who are already enrolled in the mandatory Employee Provident Fund (EPF) scheme. The VPF scheme is an optional savings scheme offered by some employers in addition to the mandatory EPF scheme.

To invest in the VPF scheme, an employee needs to submit a request to their employer, who will then deduct the additional contribution from the employee’s salary and transfer it to the VPF account. The contribution limit for the VPF scheme is currently 100% of the employee’s salary, subject to a maximum of Rs. 1,50,00 per year.

How to Open a VPF Account

To open a Voluntary Provident Fund (VPF) account, you need to follow these steps:

1. Check if your employer offers the VPF scheme: The first step is to confirm with your employer if they offer the VPF scheme. If your employer offers the VPF scheme, you can proceed with the account opening process.

2. Submit a request to your employer: Once you have confirmed that your employer offers the VPF scheme, you need to submit a request to your employer to enroll in the scheme. You can do this by filling out a form provided by your employer or by sending an email requesting enrollment in the VPF scheme.

3. Provide necessary details: Your employer will provide you with a VPF enrollment form that you need to fill out with your personal and employment details. This may include your name, address, PAN card number, date of birth, and other necessary details.

4. Submit the form: Once you have filled out the VPF enrollment form, submit it to your employer along with a copy of your PAN card and any other required documents. Your employer will then deduct the additional contribution from your salary and transfer it to your VPF account.

5. Verify your account: After submitting the enrollment form, you will receive a confirmation from your employer that your VPF account has been opened. You can then verify your account by logging in to the EPFO website using your UAN number and password.

6. Start contributing: Once your VPF account is open, you can start contributing an additional amount over and above your mandatory EPF contribution. The contribution limit for the VPF scheme is currently 100% of the employee’s salary, subject to a maximum of Rs. 1,50,00 per year.

Benefits of Voluntary Provident Fund

The Voluntary Provident Fund (VPF) scheme offers several benefits to employees who choose to invest in it. Some of the key benefits are:

1. Tax benefits: The contributions made by the employee and the employer to the VPF scheme are eligible for tax deductions under Section 80C of the Income Tax Act, up to a maximum limit of Rs. 1,50,00 per year.

2. Higher retirement corpus: By contributing to the VPF scheme, employees can build a larger retirement corpus as the contributions are over and above the mandatory EPF contributions. This can help them achieve their retirement goals and provide financial security during their golden years.

3. Flexibility: The VPF scheme offers greater flexibility in terms of contribution levels and tenure as compared to the mandatory EPF scheme. Employees can choose to contribute any amount over and above the mandatory EPF contribution, subject to a maximum limit of 100% of their salary.

4. Interest rate: The interest rate on the VPF scheme is currently 8.1% per annum, which is the same as the interest rate on the mandatory EPF scheme. This ensures that employees earn a competitive rate of return on their investments.

5. Portability: The VPF scheme is portable, which means that employees can continue contributing to it even if they change jobs or retire from service. This ensures that their retirement corpus remains intact and continues to earn interest until they withdraw it.

PF Vs EPF Vs VPF

The Provident Fund (PF) scheme in India is a social security scheme that provides retirement benefits to employees. There are three types of PF schemes available:

1. Employees’ Provident Fund (EPF): This is a mandatory contribution scheme for all establishments with 20 or more employees. The contribution is made by both the employer and employee, and the funds are managed by the Employees’ Provident Fund Organization (EPFO).

2. Employees’ Pension Scheme (EPS): This is a mandatory pension scheme for all establishments with 20 or more employees. The contribution is made by both the employer and employee, and the funds are managed by the EPFO.

3. Voluntary Provident Fund (VPF): This is an optional contribution scheme for employees who wish to contribute more than the mandatory EPF contribution. The contribution is made by the employee, and the funds are managed by the EPFO.

The key differences between these schemes are:

1. Mandatory vs Optional: The EPF and EPS schemes are mandatory for all establishments with 20 or more employees, while the VPF scheme is optional for employees who wish to contribute more than the mandatory EPF contribution.

2. Contribution: Both the employer and employee contribute to the EPF and EPS schemes, while only the employee contributes to the VPF scheme.

3. Interest rate: The interest rate on all three schemes is currently 8.1% per annum.

4. Portability: All three schemes are portable, which means that employees can continue contributing to them even if they change jobs or retire from service.

5. Tax benefits: Contributions made to all three schemes are eligible for tax deductions under Section 80C of the Income Tax Act, up to a maximum limit of Rs. 1,50,00 per year. However, only the interest earned on these schemes is taxable, subject to certain conditions.

The interest rate of a VPF

The interest rate for the Voluntary Provident Fund (VPF) scheme in India is currently 8.1% per annum, which is the same as the interest rate for the mandatory Employees’ Provident Fund (EPF) scheme. The interest rate is fixed by the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organization (EPFO) and is reviewed annually. The interest rate for both the EPF and VPF schemes is compounded annually and credited to the account of the subscriber on March 31 every year. The interest earned on these schemes is taxable, subject to certain conditions, and is included in the total income of the subscriber in the year of receipt.

The process to withdraw money from a VPF account.

The process to withdraw money from a Voluntary Provident Fund (VPF) account is similar to the process for withdrawing money from an Employees’ Provident Fund (EPF) account. Here are the steps:

1. Fill out Form 19: The subscriber needs to fill out Form 19, which is available on the EPFO website or can be obtained from the employer. The form should be duly filled, signed, and submitted to the employer.

2. Submit proof of identity and address: Along with Form 19, the subscriber needs to submit proof of identity and address, such as a PAN card, voter ID card, passport, or driving license, and a recent utility bill or bank statement.

3. Wait for approval: The employer will verify the documents and forward the request to the EPFO. The EPFO will approve or reject the request based on the eligibility criteria.

4. Receive withdrawal amount: Once the request is approved, the EPFO will credit the withdrawal amount to the subscriber’s bank account within 10 days.

5. Tax implications: The amount withdrawn from a VPF account is taxable under Section 10(12) of the Income Tax Act if it is withdrawn before five years of continuous service with the same employer. If withdrawn after five years of continuous service, it is completely tax-free. However, if the subscriber has already availed tax benefits for VPF contributions under Section 80C, then a portion of the withdrawal may be taxable as per the tax slab rate applicable to the subscriber’s income.

Conclusion

In conclusion, the Voluntary Provident Fund (VPF) scheme is an optional retirement savings scheme offered by employers in India. The interest rate for both the VPF and mandatory Employees’ Provident Fund (EPF) scheme is currently 8.1% per annum. The process to withdraw money from a VPF account is similar to that of an EPF account, involving filling out Form 19, submitting proof of identity and address, waiting for approval from EPFO, and receiving the withdrawal amount in the subscriber’s bank account. However, there are tax implications depending on when the withdrawal is made, with partial taxability if withdrawn before five years of continuous service with the same employer. Overall, the VPF scheme provides an additional avenue for employees to save for their retirement while enjoying tax benefits under Section 80C.