Voluntary Provident Fund (VPF) – Rules, Interest Rate, Benefits, Limit

Voluntary Provident Fund:- A voluntary deposit made by an employee above the maximum amount allowed for their EPF contribution is known as a Voluntary Provident Fund, or VPF for short. The interest on this extra sum is equal to the interest on the EPF contribution. To invest in VPF, one must have an EPF account since the VPF account is only connected to the employee’s EPF account.  Read below to check the detailed information related to Voluntary Provident Fund.

What is Voluntary Provident Fund 2024?

What is Voluntary Provident Fund 2024?

The employee is not required to contribute a set amount to the VPF account; however, the VPF contribution should ideally be more than the 12% PF maximum. The employee may make contributions to the VPF from both his or her entire base pay and dearness allowance. The employee’s EPF account is credited with the interest earned, and the rate offered on VPF and EPF are the same. Workers may fund the programme with up to 100% of their dearness allowance and base pay. The interest rates of the VPF and EPF plans are comparable. Participation in the VPF is voluntary for both employers and employees. Nonetheless, there is a five-year lock-in period for the scheme. Every year, the Government of India sets the VPF interest rate.

Voluntary Retirement Scheme

Benefits of VPF – Voluntary Provident Fund 2024                                 

Some of the key benefits of the Voluntary Provident Fund are as follows:

  • Since the system is managed by the Indian government, there are no risks involved in investing in it. Compared to other long-term investment choices offered by commercial companies, investing in a VPF account is fairly safe.
  • The process of opening a VPF account is not too difficult. By completing the registration form and sending it to the finance department of their employer, employees can request to open a VPF account.
  • The interest rate under the VPF system is 8.15% per annum. Tax exemption also extends to the interest earned from the contributions.
  • Employees can easily move their VPF account from their previous employer to their new one if they change jobs.

Features of Voluntary Provident Fund

Some of the key features of the Voluntary Provident Fund are as follows:

  • Employees may fund their VPF Account with up to 100% of their base pay (plus the dearness allowance).
  • Only salaried workers who are employed by any company that has been properly approved by the Employees’ Provident Fund Organisation of India may participate in the programme.
  • The only difference between an EPF (Employee Provident Fund) account and a VPF account is the EPF account’s applicable 12% salary-contribution share. VPF does not have a separate account
  • There is no requirement for employees to contribute to VPF; registration in this programme is entirely voluntary.
  • This programme is not available to self-employed people or those who work in unorganised industries.
  • Before the base tenure is finished, investments cannot be withdrawn during the 5-year maturity term, often known as the lock-in period.
  • EPF and VPF both have the same interest rates. VPF interest rates for FY 2023–2024 are currently 8.25%.
  • For better tax forecasting and financial planning for both the employee and the employer, it is ideal to launch a voluntary provident fund scheme at the beginning of the financial year.
  • Upon retirement or resignation from employment, the employee is entitled to the ultimate maturity amount. Similar to EPF plans, this sum can also be moved from one employer to another.
  • VPF accounts allow for partial withdrawals, such as loans. Also allowed are full withdrawals; however, there may be tax ramifications.
  • However, depending on the objective and judgement of the regulatory authority, loans and partial withdrawals are allowed. Furthermore, the amount will be entitled to a tax deduction if it is removed before the five-year minimum deposit period.

Public Provident Fund

Who Needs to Make a Voluntary Provident Fund Invest?

For all such paid persons seeking to lower their tax bill and invest in long-term financial products, a VPF account is the perfect option. VPF accounts are thought to be the best alternative for those who are getting close to retirement and require a reliable and secure pension fund.

Voluntary Provident Fund Interest Rate

The Indian government determines the interest rate, which is then updated annually. The interest rate that will apply for the financial year 2023–2024 is 8.25% p.a. The high rate of interest and tax advantages associated with VPF accounts makes them a feasible option for investments.

Eligibility Criteria for Voluntary Provident Fund

The applicants applying for Voluntary Provident Fund must fulfill the following eligibility criteria:

  • In order to be eligible for the withdrawal of VPF funds without incurring any corresponding tax deductions, your VPF account needs to have been open for at least five years.
  • Employees can request a withdrawal of monies from their VPF account by submitting a Form-31 and request letter to their individual employers. Documents Needed for VP

Required Documents for Voluntary Provident Fund                              

Some of the important documents required for Voluntary Provident Fund are as follows:

  • Form-31
  • Personal details of the employee
  • Employee’s EPF account number
  • Employee’s postal address
  • Bank details where the maturity/ advance proceeds shall be credited
  • A cancelled cheque    

Post Office PPF Account

Steps to Open a Voluntary Provident Fund Account

  • An employee must request in writing an additional wage deduction from their employer in order to enrol in the Voluntary Provident Fund.
  • You can start a VPF account at any point throughout the current fiscal year.
  • The necessary information that needs to be given to the business is personal data as well as the monthly contribution amount from basic pay and DA.
  • During the fiscal year, one cannot stop investing under the VPF.
    If funds are taken out during the initial five years of the programme, the accrued interest will become taxable.
  • Typically, at the start of the fiscal year, companies urge staff members to begin investing in the VPF plan.
  • Note that 100% of the monthly dearness allowance and basic salary component is the maximum amount that can be contributed to VPF.

Procedure for Withdrawing money from Voluntary Provident Fund Account

Withdrawing funds from a VPF account may be necessary in the event of unexpected medical expenses. For VPF withdrawal, employees must complete Form-31 and submit a written request letter. The Form-31 will be available to employees via the government site or through their employer’s Human Resource (HR) department. All necessary paperwork must be submitted, including the employee’s information such as their bank account data, mailing address, and PF number. It also needs to provide a cancelled cheque. Every submitted document needs to be self-attested.

FAQ’s

What differentiates VPF and EPF from one another?

VPF is the name of the EPF extension. A person is required to fund an EPF account with 12% of their base pay and Dearness Allowance. The highest permitted voluntary contribution in a VPF is 100%.

What happens when I change jobs with regard to my VPF account?

When you change employment, your Voluntary Provident Fund account can be quickly transferred to your new employer because it is connected to your Aadhaar.

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