What is a Voluntary Provident Fund (VPF)? How to Open a VPF Account Online?
For many of us retirement planning may seem a distant thing to worry about. Yet, it is one of the essential things that we should start planning as early as possible. Research suggests that people tend to save for marriage, a child’s education, a holiday trip, or buying a new house but tend to push their retirement planning down the line. However, we cannot stress enough that retirement planning should be your priority since it is the only financial goal for which you won’t get a loan. Thus, today we’re going to consider different available options to safeguard your retirement corpus. This includes provident funds (PFs). In India, there are two types of PFs: compulsory and optional. The Employee Provident Fund (EPF) is mandatory, while Voluntary Provident Fund (VPF) is optional.
What is a Voluntary Provident Fund (VPF)?
VPF full form is the Voluntary Provident Fund, a government-backed, optional, and high-return scheme. This retirement savings scheme is linked to the Employees’ Provident Fund (EPF). In a Voluntary Provident Fund system, only the concerned individual can contribute to VPF, unlike EPF, which enables employees and employers to contribute. Therefore, you can view the Voluntary Provident Fund as an extra contribution to income made by individuals. The amount that is over and above the compulsory percentage is the Voluntary Provident Fund.
How Does a Voluntary PF Work?
The Voluntary Provident Fund scheme is an extension of the Employee Provident Fund (EPF) and operates under the same principles. It allows employees in India to make additional VPF contributions towards their retirement savings. Thus, employees can voluntarily contribute a portion of their salary to the VPF beyond the mandatory EPF contribution.
Employee VPF contributions earn a fixed VPF interest rate determined by the government, typically aligned with the EPF interest rate. The interest on Voluntary PF is compounded annually. Thus, upon retirement or resignation, employees can withdraw the accumulated funds in their VPF account. This includes both the contributions and the accrued interest. It’s important to note that premature withdrawals before completing five years of continuous service may have tax implications.
What are the Features of a Voluntary Provident Fund?
Voluntary PF has the following features that you must know:
- VPF Contribution: Employees can contribute any amount to VPF, up to 100% of their basic salary and dearness allowance.
- VPF Interest Rate: The VPF interest rate is linked to the interest rate on EPF, which is currently 8.15%.
- Maturity Period: The maturity period for the Voluntary Provident Fund is 35 years. However, you can withdraw your money from VPF after completing five years of continuous service.
- Tax Benefits: The contributions to the Voluntary Provident Fund are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.
- VPF Withdrawal Rules: You can withdraw your money from VPF after the maturity period or in certain other circumstances, such as for medical emergencies or house purchases.
What is the Eligibility Criteria for Investing in VPF?
Individuals who belong to the organized sector of the economy can go for a Voluntary Provident Fund (VPF). Moreover, EPF only applies to organisations with more than 20 employees. Therefore, one must work in an organisation that is recognised by the Employees’ Provident Fund Organisation (EPFO) to avail oneself of the benefits of the VPF scheme. If your company provides a Voluntary Provident Fund option, you can actively avail of this option throughout the financial year as an employee.
What are the Documents Required to Open a VPF Account?
To open a Voluntary PF account, an employee must present the following documents:
- Company Registration Certificate with the Ministry of Finance (MoF)
- You need to submit a copy of a valid identity proof document.
- Acceptable documents include an Aadhaar card, PAN card, Passport, Voter ID card, Driving license or any other government-issued photo ID card.
- Detailed profile of the organisation.
- Form 49 and Form 24.
- Business registration certificate
Therefore, as an employee, you must inform your employer of your desire to increase your EPF contribution. Your existing EPF account will be used for the VPF contribution.
Voluntary Provident Fund (VPF) Interest Rate Trajectory
The Government of India and the Employees’ Provident Fund Organisation (EPFO) review the interest rate of VPF at the end of every quarter. Therefore, we have listed out the growth trajectory of VPF interest rates for the following years.
| Year | Interest Rate |
|---|---|
| 2023-24 | 8.15% |
| 2021-22 | 8.10% |
| 2019-20 | 8.50% |
| 2018-19 | 8.65% |
| 2017-18 | 8.55% |
Since the VPF interest rates are announced at the beginning of the financial year, they might fluctuate in both ways. Thus, the change in VPF interest rates is a good sign as it ensures that your money grows over time. If the VPF contribution is on a regular basis, you can expect to see a significant increase in your savings over the years.
How to Open a VPF Account Online and Offline?
Voluntary Provident Fund Account Opening Online
- Visit the official EPF portal or website designated by your employer. Employers usually provide employees with online access to their EPF accounts.
- To open a VPF account online, log in or register using your credentials. If not, please register by providing your EPF member ID, personal details, and contact information.
- Navigate to the VPF section and this section might be labelled as “VPF Contribution” or similar.
- Enter the desired contribution amount for your VPF account. The government or your employer may set a maximum limit.
- Please review the contribution details and confirm the amount you wish to contribute to your VPF account. Then, follow the instructions to authorize the deduction from your salary.
- After successfully submission, you will receive an acknowledgement or confirmation of the transaction.
Voluntary Provident Fund Account Opening Offline
- Go to the nearest EPFO office in your locality.
- Fill up the VPF account opening form and submit it along with the following documents:
- Identity proof: Aadhaar card, PAN card, voter ID card, passport, or driving license.
- Address proof: Aadhaar card, voter ID card, passport, or driving license.
- Proof of employment: Salary slip or employment letter.
- Bank account details: Account number, IFSC code, and MICR code.
- Pay the VPF contribution amount. The minimum contribution amount is 5% of your basic salary and dearness allowance.
- Your VPF account will be opened within a few days. You will receive an acknowledgement from the EPFO office.
VPF Contribution Limit
There is no maximum voluntary provident fund limit. Individuals can contribute even 100% of their monthly income (salary + dearness allowance) towards VPF. Also, once the VPF account is opened, it cannot be closed for five years. As a result, VPF contributions can only be halted after the completion of this five-year term from the account opening date.
VPF Withdrawal Rules
The fund lets you take out some money as loans and even withdraw the entire amount. If the withdrawal happens before the 5-year minimum tenure, you might need to pay tax on the total amount you’ve earned. However, once the employee resigns or retires, the final maturity is paid from the date of employment. In case of the account holder’s death, the assigned nominee gets the total amount in the VPF account.
The VPF account can be broken for various reasons, such as:
- Medical emergencies for the employee or their family
- Employee’s marriage or higher education
- Purchasing new land/house or constructing a house
- Covering children’s education expenses
VPF Lock-in Period
The VPF account has a lock-in period of five years. If an employee withdraws from the EPF before this period elapses, the withdrawn amount becomes taxable as income from salary and is subject to TDS under section 192A.
VPF Tax Benefit
A Voluntary Provident Fund enjoys the complete benefits as offered by EPF. Contributions that are made for the EPF are eligible for Tax deductions under Section 80C of the Income Tax Act, 1961. This means that you can reduce your taxable income by the amount you contribute to VPF.
Additionally, if an individual completes the 5-year lock-in period and does not withdraw the amount, the interest and the maturity amount are eligible for tax exemption. Furthermore, since EPF and VPF are government-backed schemes, the account holder is eligible to enjoy the significant and guaranteed benefits of both schemes.
VPF Tax Exemption
The Voluntary Provident Fund (VPF) is classified under the EEE (Exempt Exempt Exempt) category. Thus, the contributions to VPF and the interest and principal/maturity amounts are tax-free. However, if withdrawals from the VPF are made within five years of investment, they are subject to taxation. Withdrawn amounts are only tax-free if withdrawn after five years of investment.
How to Invest in a Voluntary PF?
Making VPF contributions can be very simple and straightforward. Unlike PPF, you may not need to open a separate account; you can inform your employer that you’re willing to increase your EPF contribution. As a result, the employer will deduct a desirable amount that you wish to get deducted.
What’s more? The EPF account is transferable, so in the case of job change, you can inform your new employer that you’re willing to make VPF contributions from the same EPF account.
Who Can Invest in a Voluntary Provident Fund?
A VPF is like an extension of the EPF. It’s a choice for salaried people who get their monthly pay in a particular salary account.
What are the Benefits of Voluntary Provident Fund?
Here are the benefits of Voluntary Provident Fund (VPF):
- Security: The money in VPF is invested in a diversified portfolio of assets, including government bonds, corporate bonds, and equity. This diversified the investment.
- Liquidity: You can withdraw your money from VPF after maturity, or in certain other circumstances, such as for medical emergencies or house purchases.
- Easy to Open: You can open a VPF account through your employer or online. The process is simple and straightforward.
- Loan and Partial Withdrawal Options: During a financial emergency, accessing partial withdrawals or obtaining a loan against your VPF account balance is a convenient option. Generally, these alternatives prove to be more economical compared to taking a loan to overcome such circumstances.
How to Check the VPF Balance?
To verify your VPF (Voluntary Provident Fund) balance, follow these steps:
- Visit the EPFO (Employees’ Provident Fund Organization) official website.
- Log in using your UAN (Universal Account Number) and password.
- Once logged in, look for the “Member Passbook” section.
- Select the respective member ID linked to your VPF for the establishment.
- At last, your VPF balance, along with other transaction details, will be displayed.
How to Withdraw from a VPF Account?
To understand how to withdraw from VPF, let’s have a look at the two ways to withdraw from a VPF account:
- Online: You can withdraw money from your VPF account online through the EPFO website. After logging into your EPFO account, complete a withdrawal request form. Additionally, upload a scanned copy of your PAN card and provide your bank account details.
- Offline: You can also withdraw money from your VPF account offline by submitting a withdrawal request form to your employer.
Once you have submitted your withdrawal request, your employer will process it and send the money to your bank account. The processing time for a withdrawal request is usually 10-15 working days.
Here are some of the documents that you will need to submit for a VPF withdrawal:
- Form 31: This is the withdrawal request form you must fill out.
- PAN Card: Submit a scanned copy of your PAN card.
- Bank Account Details: Submit the details of your bank account, including the account number, IFSC code, and MICR code.
VPF vs Other Provident Funds Scheme
EPF (Employee Provident Fund), VPF (Voluntary Provident Fund), and PPF (Public Provident Fund) are all popular investment options in India that serve as vehicles for long-term savings and retirement planning. While EPF vs VPF vs PPF share similarities in their purpose of wealth accumulation, their distinct differences set them apart.
While EPF is an employer-driven mandatory scheme, VPF and PPF allow individuals to make voluntary contributions. EPF vs VPF is focused on retirement savings and offers similar benefits, whereas PPF caters to broader financial goals and provides additional liquidity options. Understanding the contrasting traits of these savings instruments can help individuals make informed decisions based on their financial needs, risk appetite, and long-term goals.
To Wrap It Up….
A VPF account is quite similar to an EPF account. Thus, the Voluntary Provident Fund (VPF) accounts can offer individuals a good opportunity to enhance their retirement savings through additional contributions to their existing Employee Provident Fund (EPF) account. Additionally, VPF accounts can provide a secure and tax-efficient investment avenue. This further enables employees to set aside a good portion of their salary towards their long-term financial goals.
As always, investors must do their own research and/or consult their financial advisor before investing.
FAQs
The VPF falls under the EEE (Exempt Exempt Exempt) category. Thus, this ensures that contributions, interest, and principal/maturity amounts remain tax-free. However, withdrawing VPF funds within five years of investment will be taxed.
There is no maximum VPF contribution! You can contribute up to 100% of your basic salary + dearness allowance, offering significant retirement saving flexibility.
VPF is linked to your Aadhaar and automatically transfers to your new employer with proper documentation. Thus, you can retain all benefits and contributions.
Members of the Voluntary Provident Fund account can withdraw partially from their accumulated amount. However, if you withdraw funds before completing 5 years, there will be tax deductions on the accrued amount.
No, it is not possible to withdraw from the scheme in the middle of the year after your VPF account is created.
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