Voluntary Provident Fund

Voluntary Provident Fund (VPF), also known as Voluntary Retirement Fund, is a safe and lucrative saving scheme. Here, employees make a voluntary fund contribution towards their Provident Fund (PF) account. The contribution amount is fixed by the employee, who also retains complete control over his/her VPF account. The maximum contribution a person can make is up to 100% of the Basic Salary and DA (Dearness Allowance). The current rate of interest is same as that for EPF (Employee Provident Fund). The FY2020-21 VPF interest rate is 8.50% per annum.

In the post below, we will discuss Voluntary Provident Fund features, tax benefits, eligibility criteria, documents required, how to open the VPF account, interest rate, interest calculation, benefits, withdrawal terms and conditions, how to withdraw funds, and FAQs.

Features of Voluntary Provident Fund

Below-given are VPF features:

  • VPF, unlike EPF, is a fund account, wherein the employer makes no contribution. All the contributions are by the employee itself. Thus, the contribution is a no obligation to the employer.
  • The fund allocation is beyond the 12% contribution by an employee to EPF. Rather, the employee can choose to contribute any fixed amount every month as per convenience and up to 100% of his/her Basic Salary and Dearness Allowance.
  • Once the employee chooses to contribute a specific amount every month, he/she has to continue the VPF account for at least 5 years.
  • The Government of India decides the Voluntary Provident Fund interest rate at the start of every financial year. The latest interest rate per annum is 8.50%.

Voluntary Provident Fund Tax Benefits

When it comes to investments, a VPF account is safest and the best because it helps to save tax:

  • Employees are eligible for tax benefits up to Rs. 1 lakh under Section 80C of the Income Tax Act, 1961.
  • The interest amount earned on the contributions is also exempt of tax.
  • The interest earned is only taxable if the VPF interest rate exceeds 8.50%.

Voluntary Provident Fund Eligibility Criteria

So, you must wonder who exactly can invest in this fund account. VPF is like an extension to EPF. Here, only salaried individuals who receive a regular monthly payment in a specific salary account, are eligible to make a contribution to VPF. Also, the employer must be eligible for EPF facility.

  • Only people who work for organizations that come under the EPFO (Employees’ Provident Fund Organization) and have an EPF account can open a VPF Account.
  • It is not possible for workers from the unorganized sectors to apply for a Voluntary Provident Fund account.
  • Eligible individuals can open this account at any given point in a financial year. But it is best to open the fund account at the start of a financial year for a better tax planning.
  • Investment towards a VPF account cannot be discontinued for tenure of 5 years.
  • In case an amount is withdrawn before the maturity tenure, then withdrawn amount is taxable.
  • Partial withdrawal in form of a loan is possible against the Voluntary Provident Fund account.

Documents Required to Open a VPF Account

Below given are the documents for Voluntary Provident Fund account:

  • Form 24 and Form 49
  • One has to state the company details accurately in the form
  • Business registration certificate (Form 9 and Form D)
  • The company registration certificate with the Ministry of Finance (MoF)
  • If the company is ‘Sdn Bhd’, the it is necessary to submit the Memorandum and Articles of Association

How to Open a VPF Account?

It is easy to apply for Voluntary Provident Fund Account. Here are the steps to it:

  • Firstly, the employee should get in touch with the HR/Finance team.
  • After this, he/she must raise a request to open a VPF account for additional contribution.
  • The existing EPF account will act as the additional Voluntary Provident Fund account.
  • One can apply for it through the VPF registration form.

Voluntary Provident Fund Interest Rate

Investment and saving for this type of account is preferable because of tax benefits and high rate of interest. The interest rate may change or remain constant as per the laws directed by the Indian Government on a financial year basis. Here are the details about VPF interest rates and their comparison with PPF interest rates:

Financial Year VPF Interest Rate Per Annum PPF Interest Rate Per Annum
2013 to 2014 8.75% 8.7%
2014 to 2015 8.75% 8.7%
2015 to 2016 8.8% 8.7%
2016 to 2017 8.8% 8% to 8.1%
2017 to 2018 8.55% 7.6% to 8%
2018 to 2019 8.65% 7.6% to 8%
2019 to 2020 8.50% 7.9% to 8%
2020 to 2021 8.50% 7.1%

Voluntary Provident Fund Interest Calculation

The interest amount is credited to the account on based on the monthly running balance. This is in effect from the last day of every year in the following way:

  • The total interest amount is rounded off to the nearest whole rupee. In this case, 50 paisa are accounted for as the next higher rupee.
  • On the balance in account on the last day of previous year. If an amount is withdrawn in the current year, then interest of 12 months is credited to the account.
  • If an amount is withdrawn in a financial year, then the interest is accrued from the start of the current FY will the last day of the month before the withdrawal month.
  • On the entire sum in the account after the last day of the former year. This is accounted from the first day of a month succeeding the credit month to the end of the current FY.
  • In case of refund, the interest is payable up till the end of a month before the date of final authorized payment. This is regardless of the receipt date for the claim.
  • If the account holder informs the commissioner in writing that interest should not be credited to the account, then the request will be honoured. In case of request for interest credit, the same shall come into effect from the day 1 of request approval.
  • Interest will not accrue if the account becomes inoperative. An inoperative account is when the VPF completes 15 years even after extension. The extension is account as fund not withdrawn from account balance even when the employee attains 58 years of age.

Voluntary Provident Fund Benefits

Below-mentioned are benefits of VPF:

  • VPF is an excellent tax saving option. It falls under the EEE (exempt on exempt on contribution; exempt from the principal; exempt on interest). One can save up to Rs. 1 lakh under Section 80C of Income Tax Act of India.
  • It is a risk-free investment and saving tool compared to other long-term investment options given by the private players.
  • This account is great to kickstart savings and build a savings portfolio, serving financial assistance in times of emergencies.
  • The current interest is 8.50% per annum. Thus, the account provides high returns on a long-term basis.
  • It is also simple to transfer this account from one employer to another during a change of job.

Voluntary Provident Fund Withdrawal

One can make complete withdrawals or take a loan against VPF contributions. Here are the terms and conditions related to VPF withdrawals:

  • One can withdraw funds from VPF account at any time. However, it is advisable to not make any withdrawal before the 5-year tenure.
  • Tax is applicable on the maturity amount if the withdrawal is before 5-year minimum tenure.
  • The account can be however broken to make payments towards medical bills, house construction, wedding, repayment towards an ongoing home loan, higher education, or purchase of new house/land.
  • The final maturity amount is usually paid to the employee, after he/she resigns or retires from the employment.
  • In case of untimely death of the account holder, the nominee or legal heir is eligible to receive the accumulated fund.

How to Withdraw Money from a VPF Account?

Here is the process of withdrawing money from Voluntary Provident Fund Account:

  • The employee has to fill up the Form-31. The HR depart will provide the form to the employee. Or, he/she can also access Form-31 from the government’s portal.
  • He/she should also give a written request letter for VPF withdrawal.
  • Details that the account holder must submit are the bank details, PF details, required self-attested documents, postal address, etc.
  • The person must also provide a cancelled cheque.

Frequently Asked Questions about Voluntary Provident Fund

Here are the VPF FAQs:

  • add1. Who should open this account

    The ideal candidates to open a VPF account are the ones looking for long-term financial investment. This account is suitable for those who are nearing retirement. This account is also feasible for those individuals who want a safe, secure, and a scalable pension fund alternative.

  • add2. Who is eligible for a VPF account?

    Employees who work on a company’s payroll are eligible to open a Voluntary Provident fund account. The company should be recognized by the EPFO Employees’ Provident Fund Organization of India.

  • add3. How much amount you can a person contribute to VPF?

    There is no minimum or maximum VPF contribution limit. The employee decides the monthly contribution amount. He/she can put aside up to 100% of the monthly come towards the account. VPF contribution is a percentage of Basic salary + Dearness Allowance. The employer does not have to contribute towards this account. Thus, the accumulated amount in the Voluntary PF account depends on the employee’s monthly contribution and the accrued interest for the investment tenure.

  • add4. What happens to the Voluntary Provident Fund account in case of a job change?

    The account holder can transfer the VPF account from an employer to another during the time of a job change. The procedure for the same is quick and simple.

  • add5. What are a few important things to remember about Voluntary Provident Fund?

    Here are a few things to consider about VPF:

    • VPF is a long-standing saving and investment. It is applicable to similar guidelines to other Provident Fund schemes.
    • VPF is a great tool against inflation and recommended to individuals in the top tax bracket or any income slab.
    • Maturity and earnings from the account are tax exempted if the employee remains in service for at least 5 years. In case the person quits job before 5 years, and needs the maturity amount, then the withdrawn amount is taxable.
    • In case the account holder needs financial assistance, he/she can take a personal loan against VPF accumulated sum.
  • add6. What is the difference between VPF and EPF in regards to contribution?

    As understood, VPF is an extension to Employee Provident Fund. In the latter, the employee has to mandatorily contribute 12% of his/her Dearness Allowance and Basic Salary. But in case of a Voluntary Provident Fund, the maximum contribution an employee can make is up to 100% of his/her DA and Basic Salary

  • add7. What are the terms and conditions of fund withdrawals?

    One can make partial withdrawal or complete withdrawal of the accumulated sum in the VPF account. Those who change jobs usually access the funds early. But if the sum is withdrawal before the completion of 5 years of the account’s existence, then tax is applicable.

    • The account holder is entitled to receive the final maturity amount at the time of retirement or resignation from employment.
    • The maturity amount is transferable from one employer to another similar to the EPF scheme.
    • Partial withdrawal in form of a loan is allowed, but subject to the discretion of the regulatory body.
  • add8. What are the differences between PF, EPF and VPF?

    Here are distinctions between PF, EPF and VPF investments:

    PF EPF VPF
    Eligible Candidates Any resident Indian Salaried person in India Salaried person in India
    Employee Contribution Not applicable 12% Up to 100%
    Employer Contribution Not applicable 12% Not applicable
    Tax Implication on Maturity None None None
    Tax Exemptions Up to Rs.1 lakh in a FY Up to Rs.1 lakh in a FY Up to Rs.1 lakh in a FY
    Tenure of Investment 15 years Resignation/Retirement whichever is earlier Resignation/Retirement whichever is earlier
    Quantum of Loan Allowed after 6 years, 50% withdrawal Possible to make partial withdrawals Possible to make partial withdrawals

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