Voluntary Provident Fund Interest Rates and How to Withdraw VPF Explained
VPF (Voluntary Provident Fund) is an employee’s voluntary contribution towards their provident fund or PF. The current VPF interest rate stands at 8.10% p.a. VPF is entirely backed by the Government of India and offers many tax benefits.
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. Read on to know how VPF could be a part of your retirement savings plan.
What is Voluntary Provident Fund (VPF)?
A Voluntary Provident Fund or VPF is a Government-backed scheme that allows individuals to contribute a certain amount of their salary towards 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.
Basic VPF Rules
When an individual opts to invest in a VPF (Voluntary Provident Fund), he must remember the following points:
- Only salaried individuals with an EPF account can opt for the VPF scheme
- The entire maturity amount will be subject to taxes in case the direct tax code comes into effect
- Individuals must refrain from withdrawing from a VPF scheme during the middle of the year. However, they can make full or partial withdrawals if faced with a financial emergency
- If the VPF amount is withdrawn within five years of opening the account, the interest amount earned from VPF contributions will be taxable
- Individuals can contribute 100% of their basic allowance along with their Dearness Allowance (DA) to VPF
- Government of India decides and revises the VPF interest rate at the beginning of each financial year
- 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
- 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
- VPF account can be transferred from the previous job to the current job
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Benefits of Voluntary Provident Fund
Investing in VPF comes with many benefits:
1. High-Interest Rate
VPF provides a high-interest rate, i.e., 8.10% per annum. Other than that, Voluntary contributions up to Rs.1.5 lakh per annum and the interest accrued are tax-exempt under Section 80C of the Income Tax Act.
2. 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.
3. Easy Transfer Process
VPF accounts can easily be transferred when one leaves their old job and joins a new one.
4. 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.
VPF Interest Rate
The Government of India is responsible for regulating the interest rates of VPF. It is announced at the beginning of every financial year, which allows employees to make better plans for tax payments. However, people need to note that the interest earned from their VPF accounts gets credited to their EPF accounts.
Now, let us take a look at VPF interest rates for the previous five years:
| Financial Year | VPF Interest Rate |
| 2021 – 2022 | 8.10% |
| 2019 – 2020 | 8.50% |
| 2018 – 2019 | 8.65% |
| 2017 – 2018 | 8.50% |
| 2016 – 2017 | 8.80% |
Who Can Invest in VPF?
Given below are details of people who can invest in VPF accounts:
- People must remember that VPF is an extension of EPF (Employees Provident Fund). Therefore, only salaried individuals are eligible to invest in VPF accounts.
- An individual needs to work at a company with more than 20 employees to be eligible for VPF.
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How to Register for a 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.
VPF Eligibility Criteria
Following are some of the mandatory criteria that an employee should meet in order to be eligible to invest in VPF-
- The contributor should be a salaried employee who receives a monthly salary in his/her salary account
- The contributor should have an active EPF account (mandatory)
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’.
How to Withdraw Amount 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.
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Tax Benefits on VPF
Section 80C of Income Tax Act, 1961, allows tax benefits of up to Rs.1.5 lakh p.a. 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.
What are the Limitations of a VPF Account?
Discussed below are the limitations of a VPF account:
- Self-employed individuals cannot open VPF accounts
- VPF comes with a lock-in period of 5 years. Therefore, making premature withdrawals is very difficult
- If one withdraws the amount before five years, it will be subject to taxation
- In addition, the interest rates may be subject to fluctuations
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, Employees’ 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 (VPF) 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 the Employees’ Provident Fund. Although 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
The full form of VPF is Voluntary Provident Fund.
Ans. VPF accounts have a lock-in period of 5 years. Generally, it is not advisable to withdraw money before the completion of 5 years. However, if the account holder decides to make premature withdrawals, the amount will be subject to taxation as per the applicable rules.
Ans. There is no hard and fast rule about the minimum and maximum amounts that individuals can invest in VPF accounts. Employees can contribute 100% of their basic salary and dearness allowances to their VPF accounts. However, one must remember that contributions above Rs.2.5 lakh in a financial year do not carry tax benefits.
Ans. Remember that the VPF interest for the first month will be zero. For the monthly calculation of interest, people have to divide the VPF interest rate by 1200 and then multiply it by the month’s opening balance to get that month’s interest.
Ans. Individuals have to assess their investment goals, tenure and risk appetite to determine which investment option is more suitable for them. Both PPF and VPF have their benefits and limitations. So, it is a good idea to evaluate liquidity needs and withdrawal rules before zeroing in on one.
Ans. Financial experts recommend that individuals who fall under the high-income bracket invest in both VPF and PPF accounts to avail their associated tax benefits.
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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.
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