What Is A Voluntary Provident Fund And How Is It Different from EPF And PPF?
NSC vs KVP: Which One Is Better For You?
16 May 2022
Salary Advance Loan: Interest Rates, Features, Uses, Eligibility And How to Apply
16 May 2022Voluntary Provident Fund or VPF is an employee’s voluntary contribution towards their provident fund or PF. An employee can contribute more than 12% of their salary towards VPF. The contribution could go up to 100% of your basic salary and Dearness Allowance towards VPF. VPF is entirely backed by the Government of India and offers many tax benefits. You can earn interest over your VPF contribution. The current VPF interest rate stands at 8.10% p.a.
Read on to know more details.
Table of contents
- What is a Voluntary Provident Fund (VPF)?
- Benefits of Voluntary Provident Fund
- Voluntary Provident Fund Vs PPF Interest Rate
- VPF Eligibility Criteria
- How to Register for Voluntary Provident Fund?
- Documents Required for VPF
- Voluntary Provident Fund Tax Benefits
- How to Withdraw from a VPF Account?
- Difference Between VPF, EPF, and PPF
- Final Word
- FAQs on Voluntary Provident Fund (VPF)
What is a Voluntary Provident Fund (VPF)?
A Voluntary Provident Fund or VPF is a Government-backed facility that allows individuals to contribute a certain amount of their salary so as to build a retirement corpus. However, employers are not obligated to contribute toward an employee’s VPF. Similarly, it is not mandatory for employees to contribute toward VPF. You can earn interest on your investment amount, which currently stands at 8.10% p.a. Note that once you opt for VPF, you cannot terminate your contribution until the completion of the base tenure of 5 years.
Benefits of Voluntary Provident Fund
Investing in VPF comes with many benefits, including income on interest earned, no cap on contribution, and risk-free investment option. Here are the benefits of Voluntary Provident Fund:
- High interest rate
VPF provides a high interest rate, i.e., 8.10% per annum. Other than that, Voluntary contributions upto 1.5 lakh per annum and the interest accrued are tax-exempt under Section 80C of the Income Tax Act.
- Hassle-free application process
Opening a VPF account is pretty simple. People can fill out and submit the registration forms and request the concerned people at the office to open a VPF account. If the employee has an EPF account, it will act as their VPF account.
- Easy transfer process
VPF accounts can easily be transferred when one leaves their old job and joins a new one.
- A safe option for Investment
VPF is entirely backed by the Government of India. So, there aren’t any risks involved. Investors feel safe putting their money into a VPF account.
Voluntary Provident Fund Vs PPF Interest Rate
The VPF interest rate for 2021-2022 is 8.10% per annum. The Government of India sets and revises this rate of interest annually.
One can compare the rate of interest for VPF and EPF for the last few years from the table given below:
| Year | VPF Interest Rate | PPF Interest Rate |
| 2021 – 2022 | 8.10% | 7.10% |
| 2019 – 2020 | 8.5% | 7.10% |
| 2018 – 2019 | 8.65% | 7.6%-8% |
| 2017 – 2018 | 8.55% | 7.6%-8% |
| 2016 – 2017 | 8.8% | 8%-8.1% |
| 2015 – 2016 | 8.8% | 8.7% |
| 2014 – 2015 | 8.75% | 8.7% |
| 2013 – 2014 | 8.75% | 8.7% |
As shown in the table above, the high rate of interest and associated tax benefits make VPF an attractive option for investors.
VPF Eligibility Criteria
VPF accounts, which are extensions of EPF, can only be opened by people who receive regular salaries every month. Therefore, it is not for people who work in the unorganised sector.
Voluntary Provident Fund Rules and Regulations
Given below are the rules and regulations of VPF:
- GOI decides and revises the VPF interest rate at the beginning of each financial year.
- Employees can contribute 100% of their salary along with the Dearness Allowance. However, opening or contributing to a VPF account isn’t mandatory.
- People who work in EPFO registered organisations and already hold EPF accounts are eligible to open a VPF account. Individuals who work in the unorganised sector are ineligible to open a VPF account.
- An employee can open a VPF account at any time of the year. However, there’s a lock-in period of 5 years, i.e., one cannot stop investing in a VPF account for 5 years.
- An employee cannot withdraw from a Voluntary Provident Fund in the middle of the year or at his/her will.
- There’s a provision for partial withdrawals in the form of loans. However, the amount will become taxable if withdrawn before the maturity period.
- One can withdraw the entire amount available at the time of maturity/resignation/retirement. The nominee will receive the entire amount if the VPF account holder passes away.
- The maturity amount will be taxable if a direct tax code is implemented.
- One can also transfer their VPF account from the previous job to the current job.
How to Register for Voluntary Provident Fund?
The hassle-free process of enrollment makes VPF an attractive scheme. According to guidelines, one can fill up the VPF application form and contact the HR/Accounts department at their workplace.
The enrollment process of a VPF account is enumerated below:
Step 1: The VPF application form needs to be correctly filled up, signed and submitted to the HR/Accounts department
Step 2: One can also formally request the employer for additional salary deductions to contribute to one’s VPF account.
Documents Required for VPF
Given below is the list of documents required to open a VPF account:
- Registration Certificate of the company
- Form 24 and Form 49
- Details of the company profile
- Business registration certificate
- Articles of association and memorandum must be submitted if the organisation falls under ‘Sdn Bhd’.
Voluntary Provident Fund Tax Benefits
Section 80C of Income Tax Act, 1961, allows tax benefits of upto Rs. 1.5 lakh per annum. The interest generated from VPF contributions is tax-exempt as well.
Wealth taxes are not applicable for the accrued interest and the maturity amount. But to avail of such tax benefits, one needs to withdraw the amount after completing the lock-in period of 5 years.
One will have to pay taxes if he/she withdraws the amount before completing 5 years.
How to Withdraw from a VPF Account?
One can opt for premature withdrawal in case of a financial emergency in the family. However, he/she has to fill up Form-31 and submit a formal letter for VPF withdrawal.
Form 31 can be collected from the HR department at the company. It can also be downloaded from the GOI’s portal.
Required details that have to be submitted include EPF number, bank details, and postal addresses. Furthermore, one has to submit a cancelled cheque.
However, individuals should remember that the documents they submit need to be self-attested.
Difference Between VPF, EPF, and PPF
While all three are Government-backed savings schemes, they are different in terms of objectives and benefits. Let’s check out the differences between voluntary provident fund, employee’s provident fund and public provident fund.
| VPF | EPF | PPF |
| Can contribute 100% of base salary and Dearness Allowance | 12% contribution from employer and employees | Maximum contribution of up to Rs.1.5 lakh per year |
| 8.10% p.a. interest rate | 8.10% p.a. interest rate | 7.10% p.a. interest rate |
| Lock-in period of 5 years | Could be withdrawn if unemployed for more than a month (taxable if withdrawn before 5 years) | Lock-in period of 15 years (extendable to 5 years more) |
| For salaried individuals | For salaried individuals | Anyone can open a PPF account |
| Contributions exceeding Rs.2.50 lakh is taxable | Contributions exceeding Rs.2.50 lakh is taxable | Interest earned on PPF is non-taxable |
Final Word
Entirely backed by the Government of India, Voluntary Provident Fund is a lucrative savings scheme. Any employee who works at an EPFO registered company is eligible to open a VPF account, which is an extension of Employees’ Provident Fund. It comes with a lock-in period of 5 years. The combination of low-risk and high-interest rates makes VPF a trusted investment option.
FAQs on Voluntary Provident Fund (VPF)
Ans. One can withdraw funds from VPF in case of a financial emergency. For example, if one needs money to repay home loans or any loan, one can use VPF. Emergency medical expenses, children’s education, marriage and the purchase of a new house are other instances when VPF withdrawals can be made.
Ans. Employees have complete freedom to decide the amount they wish to contribute to VPF. One can even contribute 100% of their salary and Dearness Allowance to VPF. However, one should note that employers are not obliged to contribute to VPF.
Ans. The Government of India sets and revises VPF rate of interest annually. The interest of a VPF account is calculated every month on the opening balance of each month. The opening balance contains both EPF and VPF. However, the money is credited to the EPF account at the end of the financial year.
Ans. The benefits of PPF and VPF savings schemes would vary based on requirements and eligibility. Their main difference lies in eligibility criteria. Only salaried individuals can open VPF account. That said, people working in unorganised sectors and self-employed individuals can open a PPF account. While VPF offers the same interest rate as EPF, i.e., 8.1%, PPF offers 7.1%.
Ans. Yes, individuals with high income can invest in both VPF and PPF schemes. They can earn tax benefits. Both PPF and VPF are GOI-backed low-risk investment options. VPF offers a high-interest rate to salaried individuals, and PPF provides them with another option for tax savings and wealth creation.
Before you go…
- Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Get personal loans up to ₹20 lakh starting at 9.9% p.a. Install the Navi app now!!
- Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and
you need a loan of up to ₹10 crore. Install the Navi app now and get instant in-principle approval right away! Interest rates starting at 7.39% p.a. - How about an affordable health insurance policy 👨⚕️ starting at a monthly premium of just ₹241? Install the Navi app now and get your policy in under 2 minutes.
- Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
