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Voluntary Provident Fund or VPF is closely related to the Employees Provident Fund (EPF) scheme. Under current rules, VPF is only available to current EPF subscribers and offers guaranteed returns which makes it a popular long-term choice for salaried individuals. What’s more, your VPF investments are also managed by the EPFO (Employees Provident Fund Organization) and subject to the same benefits as your EPF investments. In the following sections, we will discuss details of what the Voluntary Provident Fund is, it key features, benefits and more.
What is a Voluntary Fund Account?
VPF or Voluntary Provident Fund is often considered a retirement fund in which every month, a contribution is made by the employee towards the provident fund account. Employees have the option to make voluntary contributions toward the EPF account.
The contribution towards VPF does not include the mandatory 12% basic + DA (dearness allowance) contribution that a salaried employee makes into the EPF account on a monthly basis. Under current VPF rules, EPF subscribers can contribute up to 100% of their basic salary and DA as VPF contribution, however, the employer does not have to match it. The interest rate offered on the Voluntary provident fund scheme is the same as that offered on the EPF scheme.
Key Features and Benefits of Voluntary Provident Fund
VPF has been one of the preferred long-term investments among salaried employees who are seeking guaranteed returns with minimal risk to their investment. This has made it a popular retirement tool among many EPF subscribers Some of the key features and benefits of availing voluntary provident fund are as follows:
· Low Risk Investment
Unlike mutual funds, bonds, or stocks, a voluntary provident fund account is a safe investment option. The scheme is backed by the government of India, so the risk of losing your money is very low, making it a low-risk investment option.
· Great Returns
The interest rate offered under the VPF scheme is currently 8.1% p.a. which is higher than other guaranteed return investments like PPF or even fixed deposits. Receiving a high rate of interest means that the returns on VPF investment would be high as well as guaranteed.
· Simple Application Process
Salaried employees who have an operational EPF account can easily start contributing into the account under the VPF scheme. You do not have to open a new account either, all you need to do is contact the finance team of your organization and submit the application form to start making Voluntary Provident Fund contributions.
· Easy to transfer
In the case of a job change, you can easily transfer your VPF account balance to the new EPF account. Moreover, if you submit a fresh VPF application with your new employer, you can continue making VPF contributions uninterrupted.
· Loan and Partial Withdrawal Options
In the case of a financial emergency, you can easily make partial withdrawals or take a loan against your VPF account balance. Typically, these options tend to less costly as compared to taking a loan to overcome such eventualities.
So, making a VPF contribution will help an individual to have a sizable amount saved that can aid in achieving big milestones in the future.
How to Open a VPF Account
Since VPF investments are made into your existing EPF account, being a current subscriber to the Employees Provident Fund (EPF) is mandatory to apply for VPF. So, if you are a salaried person receiving payments on a monthly basis in your salary account, then only you are eligible to open a VPF account as it is an extension to your regular EPF account.
At present, you can only opt for a VPF account via the offline route and through your current employer. All you need to do is submit a letter to your organization’s accounts team or HR team requesting them to contribute to your VPF account. Along with the letter, you would also need to submit a registration form to open a VPF account. In the registration form, you would need to mention the amount you want to contribute every month towards the account.
Documents Required to Open A VPF Account
The list of documents to be submitted in order to open and start contributing to a VPF account are as follows:
- A registration certificate from the Ministry of Finance needs to be submitted since only companies registered under employee provident fund organizations are allowed to open a VPF account.
- Completely filled out Form 24 and Form 49 are to be submitted
- The employer should also submit their company profile in detail.
- A business registration certificate will also be required to be submitted.
Once the Voluntary provident fund account is created, all deductions will be made from the salary of an employee. All contributions made towards EPF accounts are exempted from tax under the provisions of section 80C.
The list of documents to be submitted in order to open and start contributing to a VPF account are as follows:
- A registration certificate from the Ministry of Finance needs to be submitted since only companies registered under employee provident fund organizations are allowed to open a VPF account.
- Completely filled out Form 24 and Form 49 are to be submitted
- The employer should also submit their company profile in detail.
- A business registration certificate will also be required to be submitted.
Once the Voluntary provident fund account is created, all deductions will be made from the salary of an employee. All contributions made towards EPF accounts are exempted from tax under the provisions of section 80C.
The exemption is restricted to Rs 1.50 lakh in a year. Also, the rules for tenure and closure of account are similar to those of an EPF account.
An individual can withdraw money from the VPF account in the event of unemployment for more than 2 months or after retirement. In the event of death, the money can be withdrawn by the nominee.
Interest Rate offered on VPF in FY 22-23
Interest on a VPF account is the same as what you earn on your EPF investments. The current interest offered on a VPF account is 8.1%, which is more than that of other guaranteed return investments like a FD and PPF account. However, the government of India has the authority to change the interest rate offered on the VPF account. Below are the historic VPF interest rates from FY 2012 to 2022:
Period (FY) |
VPF Interest Rates |
2021-2022 (present) |
8.10% |
2019-2021 |
8.50% |
2018-2019 |
8.65% |
2017-2018 |
8.55% |
2015-2017 |
8.80% |
2013-2015 |
8.75% |
2012-2013 |
8.50% |
Procedure to Withdraw Money from VPF Account
The Voluntary Provident Fund scheme has gained huge popularity among investors looking to invest in low-risk investment schemes with decent returns. Also, you have the option to make partial withdrawals in the case financial emergency. Some of the common scenarios in which an investor can withdraw money from the VPF account are:
- For medical emergencies like the treatment of self/family members
- To fund child’s higher education.
- For purchasing a self-occupied residential property,
- To pay off an existing home loan.
Withdrawal rules are simple. The Voluntary provident fund account must have existed for at least five years to withdraw the VPF amount. In the case of early withdrawals, the amount earned in interest will be liable for tax deductions.
The Voluntary Provident Fund scheme has gained huge popularity among investors looking to invest in low-risk investment schemes with decent returns. Also, you have the option to make partial withdrawals in the case financial emergency. Some of the common scenarios in which an investor can withdraw money from the VPF account are:
- For medical emergencies like the treatment of self/family members
- To fund child’s higher education.
- For purchasing a self-occupied residential property,
- To pay off an existing home loan.
Withdrawal rules are simple. The Voluntary provident fund account must have existed for at least five years to withdraw the VPF amount. In the case of early withdrawals, the amount earned in interest will be liable for tax deductions.
The procedure to withdraw funds from your Voluntary provident fund account is by submitting a request letter and Form-31 to your employer. Along with the form, you must submit required documents such as your name, postal address, EPF account number, and bank details. The maturity/withdrawal amount will be credited to the bank account number provided on the form. You may also be required to provide a cancelled check for the account where you require your money to be credited. Upon verification, the employer must attest to the documents.
Frequently Asked Questions (FAQs)
Q1. Who is eligible to open a VPF account?
Under existing rules, VPF account can be opened only by salaried individuals who are existing subscribers to the EPF scheme. Additionally, the individual has to be employed by an EPF-recognized organization to be eligible to open a VPF account.
Q2. What is the maximum and minimum amount that can be contributed towards the VPS scheme?
In the case of a VPF account, there is no minimum limit to the amount you must contribute to the account. It is up to the individual to decide how much they would like to contribute. There is however a maximum VPF contribution limit that can be up to 100% of the basic + dearness allowance (DA) of the VPF contributor.
Q3. Will I be able to take out a loan against the VPF account, and how much money can I withdraw for the loan?
Voluntary provident fund account members are eligible to withdraw partially from the amount accumulated in their Voluntary provident fund account. However, if you access your funds before the completion of 5 years, the accumulated amount is subjected to tax deductions.
Q4. How is the VPF account different from PPF and EPF?
A PPF account can be opened by any Indian citizen, but VPF and EPF require you to be a salaried Indian citizen employed in the organized sector. Secondly, the employee contribution towards VPF can be 100% of your salary and DA. But EPF requires only 12% of basic and DA. PPF accounts do not have the concept of employee contributions and this is also the case for a VPF account. All the schemes are tax exempt. The tenure for a PPF account is 15 years, but for VPF and EPF accounts, the tenure is till the time of retirement or resignation.
Sources:
https://cleartax.in/s/voluntary-provident-fund
https://indialends.com/epfo/voluntary-provident-fund
https://www.bankbazaar.com/saving-schemes/vpf.html
https://stableinvestor.com/2019/04/vpf-interest-rate-history.html
https://scripbox.com/saving-schemes/voluntary-provident-fund/
https://www.creditmantri.com/voluntary-provident-fund/
https://www.cnbctv18.com/personal-finance/epf-vs-ppf-vs-vpf-whats-the-most-suitable-scheme-for-you-13684592.htm
ARN No: Aug22/Bg/26A
