Voluntary Provident Fund (VPF) Rules and Guidelines

Voluntary Provident Fund, also called as Voluntary Retirement Fund is a contribution voluntarily made by the employee. Contributions of up to 100% of the Basic salary and Dearness Allowance can be made to this provident fund. The rate of interest is the same as EPF.

Here are some of the basic VPF Rules & Guidelines: 

• You cannot discontinue or withdraw out of a VPF scheme in the middle of the year.
• VPF scheme can be availed only by salaried professionals enrolled with the EPF.
• If the direct tax code comes into effect, the entire maturity amount becomes taxable.
• You can contribute 100% of basic plus dearness allowance as investment in VPF.
• If the VPF money is withdrawn within five years, you will have to pay tax on the interest amount earned from your contribution towards the VPF.

Rules of VPF 

• Once you have opted for VPF, you cannot discontinue the investment mid-year.
• Before opting for VPF, it’s important to know that if you withdraw money within the first 5 years of service, then the interest becomes taxable.
• The responsibility of getting the VPF enrollment falls on the employee who must request their employer.
• Most employers would like their employees to start their VPF at the start of the financial year.
• VPF is available only to salaried individuals.
• The risk of interest rates falling are higher with this investment as the interest rates are subject to change every year.
• If Direct Tax Code comes into effect, then the entire maturity value will be taxable. 

How to enrol in VPF? 

• Only salaried employees enrolled in the EPF are eligible to register for the VPF scheme.
• If the company offers VPF option, the employee can opt for this during any point in the financial year.
• The application form for VPF needs to be duly signed, filled & submitted to the accounts/finance/payroll of your company.
• You can also request your employer to increase your contribution towards VPF by writing in request, asking for additional deduction from salary.

Another Reading: EPF vs PPF vs VPF: Which one is better for saving money?

How to invest in VPF

Applying for Voluntary Provident Fund is extremely simple. And an employee can contribute a maximum of 100% of the Basic Salary and Dearness Allowance. The process requires the employee to write to the employer or concerned HR person requesting them to increase the PF contribution by the amount they desire. This option is available at any point of time during the financial year, unless the employer has specified their own requirements. A VPF Form will need to be filled and signed and then submitted to the accounts department or the concerned person in your company. The VPF Form only requires details such as the amount you would like to contribute from your basic salary and your dearness allowance.

Benefits of investing in VPF 

• You can contribute a maximum of 100% of basic salary and dearness allowance which is more than the conventional PF (Provident Fund) contribution of 12% of one’s basic salary.
• VPF Interest rate is equal to that of the PF, and currently is 8.65%.
• Withdrawals after the 5-year lock-in period are completely tax-free.
• There is income tax exemption at all stages -contribution, investment, accumulation and returns and also at the time of withdrawal.
• Employees can access the VPF money for reasons like marriage, house purchase, children’s education, etc.
• The contribution to VPF is optional but if the subscriber chooses to make a contribution, he/she will be required to continue the contribution throughout the financial year -just a measure of convenience for one’s employer. There is no mandatory savings limit.

VPF Benefits & Procedures

VPF is an attractive investment option for salaried employees. Over and above the mandatory EPF contribution amounting to 12% of the basic salary, the employee can choose to contribute an amount higher to increase the investment in their EPF account. However, if the employee opts to increase their PF contribution, the employer is under no obligation to increase their contribution. The VPF is available only to salaried employees in India. This option is a smart choice for salaried individuals as the contribution is deducted directly from the salary -saving time and energy on investing it on your own. Furthermore, tax benefits will automatically be calculated in the Form 16 given by the employer.

Comparison between VPF, EPF & PPF

The following table gives an easy to follow comparison between different provident fund schemes.