For salaried individuals, securing a financially stable future is a top priority. The Voluntary Provident Fund (VPF) is a powerful tool to grow your retirement savings while enjoying tax benefits. It is an extension of the Employee Provident Fund (EPF), designed for those who want to save more voluntarily for long-term financial security.
What is Voluntary Provident Fund (VPF)?
The Voluntary Provident Fund (VPF) is an optional retirement savings scheme offered by the government for employees who are already contributing to the Employees’ Provident Fund (EPF). Unlike EPF, where the employee contributes a fixed 12% of their basic salary, VPF allows employees to contribute more than 12% of their salary, up to 100% of basic pay and dearness allowance.
Key Features:
- Optional scheme: Employees choose the amount to contribute.
- Contribution limit: From 1% to 100% of basic salary + DA.
- Interest: Same rate as EPF, usually announced annually by the government.
- Tax benefits: Contributions are eligible for tax deduction under Section 80C of the Income Tax Act.
Who Can Invest in VPF?
- Only salaried individuals contributing to EPF are eligible.
- Both private and government sector employees can invest.
- No minimum or maximum number of years to contribute; employees can join at any time.
Important: VPF is best suited for those looking for risk-free, long-term wealth creation for retirement.
How Does VPF Work?
Contribution: Employees can voluntarily increase their contribution from 12% of basic salary to a higher percentage.
Interest Accumulation: Contributions earn interest at the same rate as EPF, compounded annually.
Tax Benefits: Contributions are tax-free under Section 80C, and interest earned is tax-exempt.
Withdrawal: Employees can withdraw VPF at retirement, or under certain conditions like medical emergencies, home purchase, or education.
Example:
If your basic salary + DA is ₹50,000 and you contribute 50% to VPF:
- Monthly VPF contribution = ₹25,000
- Annual contribution = ₹3,00,000
- With EPF interest (say 8.1%), your corpus grows significantly over 20–30 years.
Benefits of Voluntary Provident Fund
High Interest Rate: VPF offers one of the highest risk-free returns among fixed-income options.
Tax Efficiency: Contributions and interest are fully tax-free if withdrawn after 5 years.
Financial Discipline: Encourages regular savings beyond mandatory EPF contributions.
Compounded Growth: Long-term investment ensures a substantial retirement corpus.
Security: As a government-backed scheme, VPF is extremely safe.
VPF vs EPF: What’s the Difference?
Feature
EPF
VPF
Contribution
Mandatory 12% of basic salary
Voluntary, up to 100% of basic salary + DA
Interest Rate
Declared annually by government
Same as EPF
Tax Benefits
Under Section 80C
Under Section 80C; tax-free interest
Withdrawal
Partial or at retirement
Partial, for emergencies, or at retirement
How to Contribute to VPF
- Employer-Managed Contribution: Inform your HR or payroll department to increase your EPF contribution percentage.
- Direct Online Contribution: Some organizations and EPFO portals allow employees to adjust VPF contributions online.
- Automatic Deduction: VPF contributions are deducted directly from your salary like EPF.
Things to Keep in Mind
- VPF funds are locked-in until retirement, although partial withdrawals are allowed in specific cases.
- It is not a short-term investment; best suited for long-term wealth creation.
- Monitor EPF interest rates annually to ensure your VPF growth is aligned with your financial goals.
Conclusion
The Voluntary Provident Fund (VPF) is truly a boon for salaried employees. It combines tax benefits, high returns, and financial discipline, making it an excellent option for those looking to secure a comfortable retirement. By contributing more than the mandatory EPF amount, employees can significantly boost their retirement corpus and enjoy financial freedom in their golden years.
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.
click and follow Indiaherald WhatsApp channel