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  7. VPF (Voluntary Provident Fund) – Benefits, Eligibility, Documents Required & Withdrawal

VPF- What is It? Tax Benefits & VPF Withdrawal

Updated on: 20 May, 2024 06:09 PM

Many investment options are available in the market to help you achieve your financial goals. Few are risk-oriented, while few are government-backed and safer to invest in. One is the Voluntary Provident Fund (VPF), an extension of an Employee’s Provident Fund (EPF), where employees can voluntarily contribute a particular part of their provident fund.

Contents

What is VPF?

A voluntary Provident Fund (VPF) is an investment made by a salaried individual voluntarily. It is an extension of the Employee Provident Fund (EPF). This is an investment done by salaried individuals towards provident funds. VPF is an optional investment for salaried individuals beyond their contribution towards EPF. This contribution is beyond 12% of the contribution made by the employee toward their EPF. Here an employee can make up to 100% contribution of his Basic Salary and Dearness Allowance. Hence, here the contribution wholly depends on the contribution made towards the scheme on a monthly basis. The interest rate earned under VPF equals the interest earned under the EPF scheme. For FY 2022-23, the interest rate applicable to EPF is 8.1%. If you are looking for a long-term investment option with high returns and low-risk factors, then you can opt for the Voluntary Provident Fund (VPF) though, once the VPF contribution is chosen, the termination of the scheme can only be done after the base tenure of 5 years.

What are the benefits of VPF?

  • The government backs VPF, which is considered a less risky zone than other long-term investment options.
  • The account is transferable; hence once you leave the job, the account can be transferred easily from one employer to another.
  • It is easy to open a VPF account. You just need to coordinate with your HR and fill out a registration form for an additional contribution to the VPF.
  • VPF contribution is entitled to deduction under Section 80 C subject to the maximum cap of Rs 1.5 lakh.
  • In case of the unfortunate demise of the contributor, the entire amount is paid to the nominee or the legal heir.
  • A better yield can be expected as the interest rate for VPF is high compared to other investment options.
  • VPF offers you the opportunity to withdraw the amount at any time. This way, you can also plan the money for short-term plans also.

What are the tax benefits available under the Voluntary Provident Fund?

VPF falls under the E-E-E category, i.e. (EEE – exempt on contribution; exempt from the principal; exempt on interest), thus making it a good tax-saving option. VPF Contributions are eligible for tax deduction under Section 80C; salaried employees are eligible for a VPF tax exemption on the interest earned from this scheme. Thus, employees can claim a deduction of up to Rs 1.5 lakh under section 80C, and the interest earned under this scheme is exempt from tax. VPF offers high-interest rates as high as 8.5% per year. The interest accrued under VPF is non-taxable

What are the eligibility criteria for VPF?

Just like EPF only salaried individuals are eligible to contribute to the VPF scheme. Employees can open a VPF account with his/her EPF account active.

What are the documents required to open a VPF account?

  • Company Registration Certificate with the Ministry of Finance (MoF)
  • Form 24
  • Form 49
  • Detailed profile of the company
  • Business registration certificate of the company
  • Memorandum and articles of association is also required if the organization is ‘Sdn Bhd’

What withdrawal facility is available under the Voluntary Provident Fund scheme?

Under VPF, partial as well as complete withdrawal is applicable. The lock-in period is 5 years, but if the withdrawal happens before 5 years, the tax applies to the accumulated maturity amount. If the contributor dies before maturity, the nominee gets possession of the accumulated fund.

Furthermore, salaried individuals can always rely on their VPF fund in case of any emergency. These reasons can be any like-

  • Payments of medical bills for the individual and his family
  • Big vents like higher education and marriage
  • Payments for house construction or purchase of new land/house

Process to withdraw money from a VPF account

In case of unforeseen situations like financial requirements or due to medical emergencies, withdrawing money from a VPF account can be helpful. Employees must fill up Form-31 and give a request letter in writing for VPF withdrawal. Employees will be able to get Form-31 from their employer's Human Resources (HR) team or on the government's portal. All required documents, including the details of the employee, such as PF number, bank details, and postal address, must be submitted. A canceled cheque must also be submitted.

What is the key difference between PF and VPF?

Criteria EPF VPF
Definition A mandatory retirement savings scheme for employees, with contributions made by both the employer and employee An optional top-up to EPF contributions, with contributions made only by the employee
Contribution Employee contributes 12% of basic salary + DA + retention allowance; employer contributes an equal amount Employee can choose to contribute a higher percentage, up to a maximum of 100% of basic salary + DA + retention allowance
Interest rate The interest rate for PF is fixed by the government and is revised annually. VPF offers the same interest rate as the PF, but the government does not fix the interest rate.
Taxation The contribution towards PF is eligible for tax deduction under Section 80C of the Income Tax Act, while VPF offers the same tax benefits as the PF. Same as EPF. However, the employer's contribution towards VPF is not eligible for a tax deduction.

Frequently Asked Questions

Q- How to check the VPF account balance?

You can follow either of these three processes:-

  • Visit the EPFO website or simply access the VPF account balance through the UMANG application.
  • Give a missed call to 011 2290 1406.
  • Send SMS to 7738 299 899.

Q- What is the key difference between EPF and VPF?

VPF is an extension of EPF. Under EPF, employees must contribute 12% of their basic salary and Dearness Allowance. On the other hand, under VPF, the maximum allowed voluntary contribution is 100%.

Q- Can I withdraw the accumulated amount from the VPF account before the maturity period?

Yes, you can withdraw the amount early, but this will be liable for tax deductions.

Q- Whom shall I approach to open a VPF account?

You can request your HR person and ask them to share the application form with you to open a VPF account.

Q- Who are eligible to open a VPF account?

All employees in the company who are on payroll are eligible to open a VPF account.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.