Voluntary Provident Fund (VPF): Benefits, Eligibility & Tax Rules

A Voluntary Provident Fund (VPF) is an investment option for salaried employees in India. Employees can start investing in VPF over the Employee Provident Fund.  One main benefit of VPF is that it is a government-backed scheme with fewer risks and higher returns. Read this blog and learn in detail about its benefits, eligibility and more.

Definition of Voluntary Provident Fund

The Voluntary Provident Fund is an optional savings scheme for employees to secure their finances after retirement. For VPF, employees on their own will contribute an amount from their salaries into their Provident Fund account. This contribution is beyond the 12% compulsory contribution to EPF. The allowed maximum contribution for VPF is up to 100% of the employee’s basic salary and DA. However, employers are not obliged to contribute to a VPF account. 

Eligibility Criteria to Open a VPF Account

Here are a few conditions you need to know about before opening a VPF account: 

• Employed individuals with an EPF account can open a VPF account for additional savings.
• Note that, EPF is only mandatory for organisations with more than 20 employees in India.
• Organisations with less than 20 employees can choose to open EPF accounts for the employees as per the will of the employer. 
• Therefore, you need to work in an EPF-recognised organisation to open a VPF account alongside EPF.

Key Information About Voluntary Provident Fund for Employees

Below are the details on how you can open a VPF account for additional savings and earn returns:

• To subscribe to VPF, you need to ask your employer in writing for an additional deduction from your salary.
• Employees need to submit their personal information with the amount they wish to contribute from their basic salary and DA.
• Note that you cannot discontinue any contribution to VPF during a certain financial year. 
• If you withdraw the amount contributed to VPF in 5 years of the scheme, the earned interest will become taxable. 
• It is beneficial for you to open a VPF account and start investing at the beginning of a financial year.
• However, one can open a VPF account anytime within a running financial year. 

Documents Required to Open a VPF Account

Here are the documents employers need to submit to open a voluntary provident fund for employees:

• They need to submit a detailed company profile for VPF registration.
• Companies also need to submit their business registration certificate i.e. ‘Form 9’ and ‘Form D’.
• VPF-registering companies also need to submit a company registration certificate (Form 49 and Form 24).
• Companies might need to add other documents as additional documents.

How to Calculate Your VPF Contribution?

Suppose an individual earns ₹40,000 (basic salary + dearness allowance) per month. Therefore, his/her compulsory contribution at 12% becomes ₹4,800 (₹40,000 * 12%). 

If this individual chooses to keep aside ₹10,000 per month for his/her entire EPF contribution, the VPF contribution becomes ₹5,200 (₹10,000 - ₹4,800). You can also use a voluntary provident fund calculator online for a quick calculation of your contribution. 

Maturity Period and Withdrawal Criteria of a Voluntary Provident Fund

Here is the maturity period of a VPF and other relevant information:

• The minimum lock-in period of an employee’s VPF is 5 years.
• As VPF is maintained through an EPF account, you can withdraw VPF contributions upon retirement.
• You can also withdraw your VPF contribution if you remain unemployed for more than 2 months.
• You can use VPF contributions to defray expenses like loan repayment, children's education, medical reasons, etc.
• If you choose to draw a VPF amount before 5 years, you cannot enjoy the applicable tax exemptions. 

Required Documents for VPF Withdrawal

If you are planning to withdraw amounts from your voluntary provident fund, furnish the following documents:

• Submit a written VPF withdrawal request to your employer with duly filled ‘Form 31’. 
• Mention your details carefully to steer clear of any errors.
• Mention your postal address in the application letter along with your EPF account number.
• Produce your bank details where you want your VPF amount credited after approval.
• Produce a cancelled cheque from your preferred bank. 

Steps to Check VPF Balance

Follow the below-mentioned steps to check your VPF balance online:

Step 1: Visit the official webpage of EPFO.

Step 2: Navigate to the tab ‘Our Services’, locate the option 'For Employees' and click on it.

Step 3: Look for the ‘Services’ tab and choose ‘Member Passbook’ under it.

Step 4: Type your Universal Account Number (UAN), enter your password and click login. 

Step 5: Choose the relevant Member ID with your VPF account after you are logged in.

Step 6: Click on the option 'View Passbook' and you will see your VPF details on the EPF passbook. 

Benefits of Opening a Voluntary Provident Fund

Below are the detailed benefits you will get once you open a VPF account:

• VPF is an excellent alternative option for tax saving as it falls under the EEE category.
• It assists you in building a sizable savings portfolio and financially helps you during major milestones in life.
• The Indian government manages VPF and therefore you can earn a set interest rate throughout a financial year. The current interest rate for VPF stands at 8.25% per annum in the financial year 2024-2025. 
• It is a risk-free investment compared to long-term investment options offered by private sector companies.
• The Indian government makes ₹1.5 lakh of contribution in a year tax-free along with the interest earned. 
• One can easily move the VPF account from one employer to another while switching jobs. 

Voluntary Provident Fund Tax Benefits

VPF is a great choice for individuals who want to save on taxes under Section 80C of the Income Tax Act, 1961. VPF allows employees to take tax benefits of ₹1.5 lakh on VPF contributions. The interest earned on a Voluntary Provident Fund (VPF) is tax-free as long as your total contributions do not exceed ₹2,50,000. If you withdraw VPF after maturity, the withdrawal is also tax-free.

Differences Between PPF, VPF and EPF

Below are the differences between the VPF, EPF and PPF:

Final Word

A voluntary provident fund is an excellent saving option for post-retirement funds. The Indian government backs this scheme and you can earn a steady interest rate until withdrawal. However, if you withdraw VPF amounts before their maturity, you need to pay taxes on the interest. 

Aside from VPF, a fixed deposit is also another effective option for securing your finances. You can open an FD account with Stable Money and earn 9.10% interest on your deposits. Download the Stable Money app today and start your FD investment journey!