Those trying to safeguard their financial future will find great use in the Voluntary Provident Fund (VPF). VPF is a special chance to increase your retirement savings under an extension from the Employees’ Provident Fund (EPF), thereby benefiting from tax advantages. In this extensive article, we will discuss the main characteristics, advantages, and factors to be taken into account while investing in VPF.
What is VPF?
Under the voluntary contribution program VPF, staff members may donate a percentage of their pay above and beyond the required EPF payment. Operating under the same guidelines as the EPF, it differs mostly from the voluntary character of the extra payments.
Key Features of VPF
- Employees may provide VPF up to 100% of their base pay and dearness allowance.
- Interest rates: VPF uses the same interest rate as EPF, which the government sets and changes on a regular basis.
- Subject to the general maximum of ₹1.5 lakh per financial year, contributions to VPF are qualified for tax deductions under Section 80C of the Income Tax Act.
Eligibility Criteria
Investing in VPF requires you to be an employee of a company covered by the EPF system. Participating in VPF is free of charge and may start at any time you are working.
How to Open a VPF Account
Starting a VPF account comes easily:
- Tell your company about your choice to donate to VPF.
- Complete the required paperwork your company or the EPF organization has supplied.
- Send the completed papers along with any necessary paperwork and a copy of your PAN card.
Contribution Process
Your choice and financial status will determine whether you want to make VPF payments yearly or monthly. Your pay will be taken from the contribution you decide upon and sent to your EPF account.
Withdrawal Rules
VPF withdrawals follow the same guidelines as EPF. You may make partial withdrawals for certain needs, including medical emergencies or property purchases. You may take the whole sum out of your VPF account upon retirement or resignation.
Advantages of VPF
- VPF is an interesting investment alternative as it provides better interest rates than conventional savings choices.
- Under Section 80C, contributions to VPF are qualified for tax deductions, therefore reducing your tax obligation.
- VPF promotes long-term savings, which, over time, may result in tremendous wealth growth.
Disadvantages of VPF
- VPF has a lock-in period, so you can only withdraw your contributions if you satisfy specific criteria, such as resignation or retirement.
- The lock-in period means that your money may only be easily available if an emergency or unanticipated cost arises.
EPF vs VPF vs NPS: A Comparative Analysis:
| Particulars | EPF | VPF | NPS |
|---|---|---|---|
| Eligibility | Any salaried individual | Any salaried individual having an EPF account | All citizens of India, whether resident or non-resident, between 18-60 years |
| Rate of Interest | 8.15% | 8.15% | 9% to 12% |
| Employer Contribution | 12% of basic salary + dearness allowance | No contribution | Optional for private companies |
| Employee Contribution | 12% of basic salary + dearness allowance | Up to 100% of basic salary + dearness allowance | 10% of basic salary + dearness allowance |
| Period of Investment | Till retirement or unemployment | Earlier of the below: Five years or Unemployment Till retirement | Till retirement or unemployment |
| Tax Benefits | Tax deduction on contributions up to Rs.1.5 lakh under Section 80C | Tax deduction on contributions up to Rs.1.5 lakh under Section 80C | Tax deduction up to Rs.1.5 lakh under Section 80CCE and 80CCD(2) |
| Partial Withdrawal | Allowed for specified purposes | Allowed for specified purposes | Allowed for specified purposes after three years of investment |
Conclusion
Your retirement planning tools would benefit much from the voluntary provident fund. Using its better tax advantages and interest rates can help you create a sizable corpus for your elderly years. Still, before deciding on any investment, give your financial objectives and risk tolerance much thought. See a financial adviser if you’re not sure if VPF might be appropriate for your particular circumstances.
To learn more about VPF and investigate your investing alternatives, speak with your company’s HR department or visit the official Employees’ Provident Fund Organization (EPFO) website at www.epfindia.gov.in.
