VPF – Voluntary Provident Fund Scheme Benefits & Interest Rate

VPF (Voluntary Provident Fund) is a type of regular provident fund scheme under which a depositor can maintain an explicit portion of their provident fund voluntarily. As the name suggests, VPF allows the contributor to electively fix the amount which will be contributed towards the scheme on a monthly basis. 

This contribution should ideally be over and above the PF limit of 12%; however he/she is not bound to contribute any specific amount towards their VPF account. The employee can contribute a full amount of their basic salary as well as DA. The interest offered on VPF is as per with the EPF scheme and the interest earned is credited to their EPF account.

No separate VPF account is maintained and this is linked to their EPF account only. Hence in order to avail the VPF account, having an EPF account is mandatory.

Salient Features of the scheme

• The Employees are allowed to contribute upto maximum cap of 100% of their salary towards the VPF Account
• VPF is basically a subset of EPF (Employee Provident Fund) account with only difference being the salary-contribution proportion i.e. the applicable 12% for that applies to the EPF account. There is no separate account for VPF
• The scheme can be availed only by salaried employees who are working in any organizations duly recognized by Employees’ Provident Fund Organization of India
• Any Self-employed individuals or working individuals in unorganized sectors cannot avail this scheme
• The enrollment under this scheme is completely on voluntary basis and there is no obligation for the employees to contribute towards VPF if they don’t wish to
• One can enroll in VPF Accounts at any time within the financial year
• The maturity term or lock in period is for 5 years and in between the investments cannot be withdrawn before the base tenure is completed
• Ideally it is advisable to start a voluntary provident fund scheme at the beginning of the financial year > this helps in better tax forecasting & financial planning for both employee and employer. However the responsibility remains with employees to get this done by simply informing his/her employer
• The interest rates are regulated by the government of India and are announced in the annual budget of every financial year. Hence with time the rates can fluctuate either way. Hence it is prudent for the employee to take a note of the applicable interest rate for that financial prior enrolment in the scheme
• Partial withdrawals such as loans are allowed in VPF accounts. Also complete withdrawals are permissible however subject to tax implications if withdrawn before 5 years
• The employee is entitled for the final maturity amount at the time of resignation or retirement from the employment. This amount can be transferred as well from one employer to the new one as similar in case of EPF schemes
• In case of the untimely death of account holder, the payout is done to the nominee or legal heir in the voluntary PF account
• Loans or Partial withdrawals are permitted, however subject to the purpose and discretion of the regulatory body. Also in case the same is withdrawn prior to the minimum deposit period of 5 years, the same is subject to tax deduction

Eligibility

VPF is referred as an extended version of Employee Provident Fund. Only salaried individuals (employees getting monthly salary in a specific salary account) can avail the benefits of VPF.

VPF Interest Rate 2023-24

The interest rates under this scheme are fixed and revised every year by the Government of India. For year 2023-24, 8.25% is the rate of interest for the subscribers of VPF. 

Here is a tabular comparison of PPF & VPF interest rates from year 2013 to 2020:

Year	Rate of Interest PPF (%)	Rate of Interest VPF (%)
2020-21	7.1	8.5
2019-20	7.9	8.65
2018-19	7.6-8	8.65
2017-18	7.6-8	8.55
2016-17	8-8.1	8.8
2015-16	8.7	8.8
2014-15	8.7	8.75
2013-14	8.7	8.75

VPF Interest Calculation

Every year, the rates of interest on PF accumulations in members’ accounts are reviewed by the Employees Provident Fund Organization. 

• A declaration is made after its Central Board of Trustees meet, which reviews the revenue generation from the investments made by the Employees Provident Fund Organization and the prevailing rates of interest on saving schemes
• The Central Board of Trustee is considered as the apex decision-making body of Employees Provident Fund Organization which decides on Employees Provident Fund interest rate, whereas the finance ministry is merely expected to approve these rates as a matter of protocol
• The commissioner shall credit interest to the account of each member at rates defined by the Central Government in consultation with the Central Board
• Interest shall be credited to the member’s account on monthly running balances with effect from the last day of each year in the following manner:
  • On the credit amount of a member on the last day of the preceding year, less any sums withdrawn during the current year—interest for twelve months;
  • On sums withdrawn during the current year— interest from the beginning of the current year up to the last day of the month preceding the month of withdrawal;
  • On all the sums credited to the member’s account after the last day of the preceding year—interest from the 1st day of the month succeeding the month of credit to the end of the current year;
  • The total amount of interest shall be rounded to the nearest whole rupee (fifty paisa counting as the next higher rupee)
  • In the case of a claim for the refund, interest shall be payable up to the end of the month preceding the date on which the final payment is authorized, irrespective of the date of receipt of the claim from the claimant concerned;

Important: Provided that interest up to and for the current month shall be payable on the claims which are authorized on or after the 25th day of a particular month along with actual payment after the end of the current month;

Provided further that the rate of interest to be allowed on claims for refund for the broken currency period shall be the rate fixed for the financial year in which the refund is authorized;

Provided also that the rate of interest to be allowed on claims for refund for the broken currency period shall be the last declared rate on Employees’ Provident Fund and if the rate declared for any current year happens to be less than the previous year’s declared rate, then it would accrue as bonus to the outgoing members and it shall be incorporated into calculation for deriving the current year’s rate of interest at the end of the year and the claims settled under this proviso shall be final.

1. Interest shall not be credited to the account of a member if he/she informs the commissioner in writing that he/she does not wish to receive it. If, however, the member subsequently asks for interest, it shall be credited to his account with effect from the first day of the period of currency in which he makes a request
2. Interest shall not be credited to the account of a member from the date on which it has become an Inoperative Account

Documents Required for VPF Account

To start your account, you need to submit the following documents-

• A detailed company profile
• Business Registration certificate (Form 9 & Form D)
• MOF- Company Registration Certificate Forms 24 & 49
• In case the company is a ‘Sdn Bhd’ (Private Limited Company)- MOA & AOA (Memorandum and Articles of Association)
• Any other document required additionally as per government regulations

Enrollment Process for Voluntary Provident Fund Account

There is no specific registration form which must be submitted to open a VPF account. However, you must be registered with EPF to gain benefits from VPF. If you want to avail the benefits of this scheme, you can ask the concerned HR person in your organisation to convert the EPF account to VPF account. Now, this conversion takes place in the following way-

• All the documents mentioned in the prior section must be provided by the employee
• The employee needs to fill & sign the KYC form and submit the same to the payroll department or HR
• The department then confirms the authenticity of the documents submitted and converts the account
• After that, the contribution percentage as decided by you voluntarily will be deducted from your monthly salary

How does VPF Scheme Works

Under VPF, the employee can contribute beyond the normal mandatory deduction of 12% of their basic salary. This 12% stands for the amount which their employer deducts every month from basic salary toward the Employees’ Provident Fund. VPF scheme is available only for resident salaried individuals without any defined obligation.

• The Maximum Amount that can be contributed towards VPF is 100% of the monthly Basic Salary component and monthly Dearness Allowance
• To subscribe under VPF, the employee has to ask their employer in writing for additional deduction from their salary
• Generally this can be done during any time within the running financial year
• The VPF form which is easily available, can be filled, duly signed and then submitted to their company
• The requisite details in the form are personal details and details of amount which is to be contributed monthly from Basic salary and DA
• One cannot discontinue the investment under VPF in between the financial year
• In case money is withdrawn within the first 5 years of the scheme, then the interest earned will be taxable
• Usually, employers encourage their employees to start investing in the VPF scheme at the beginning of the financial year
• The Interest amount shall be taxable in case the offered interest rate is more than 9.50%
• This scheme is offered only for salaried professionals
• The rate of interest offered on Provident Fund or Voluntary Provident Fund changes every financial year, and hence the same is on floating basis
• VPF account is ideally suited for all such salaried individuals who are  looking for investment in long term financial product
• VPF accounts are considered to be ideal for those people who are approaching their retirement and need a Safe and robust pension fund option

Tax Benefits on VPF Scheme

This scheme is considered and counted under the most effective investment schemes by the Government. According to the Income Tax Act of 1961, the contributions made in VPF are subject to deductions up to Rs.1.5 lakh.

• The contributions made by the subscribers are a part of the employee’s pre-tax income
• Income received as interest is not taxed. But, it stands taxable if the decided interest rate exceeds or is equal to 9.50%

Benefits of Voluntary Provident Fund

VPF account is not only a seamless & safe investment option but also enables the salaried class with fund, a medium term savings option which can be liquidated in case of any financial exigency with any loss to the capital.

Apart from its other unmatched benefits, the supplementary appeal is high interest rate offered on it. This all has made voluntary provident fund a popular choice in India amongst the employed class.

• Any employed person can contribute beyond the mandated 12 % to the extent of their total basis salary and dearness allowance. In such a case VPF offers a superior financial solution for securing their future
• The Investments under VPF are done from the pre-tax income of the employer
• The Employees contributions are entitled for deduction under the section 80C of IT act, 1961, subject to the maximum cap of Rs.1.5 Lakh
• The interest income is Non-taxable till the interest rate exceeds 8.65%
• The Redemption is also tax free until and unless the same is not withdrawn prior to the maturity period of 5 years
• VPF is considered to be one of the safest Investment Option especially for those who are looking for long term capital appreciation. The VPF scheme is managed under the mandate of Government of India and thus the trust and faith is usually coupled with long term investment option as offered by many private players
• Simple and hassle free operation is another striking feature. Every employee needs to get in touch with their Finance or HR team to get the VPF account under their name. The only requirement in terms of paperwork is the Voluntary Provident Fund account Registration form. After which their EPF account gets transferred to the VPF account. Moreover the account can be applied at any time within the running financial year
• Under VPF scheme, one can expect better yield, since the Interest rate is high and regulated by the government of India. Currently, the interest rate offered is 8.25%, which is quite notable as compared to other schemes
• The investment amount under VPF scheme can be withdrawn at the time of resignation or retirement from the current employment. This makes VPF as long term investments solution with dual benefit of Post Retirement financial planning
• The Employee’s investment towards VPF account is entitled for IT deduction benefit till Rs.1 lakh
• In case of Job change VPF accounts are easily transferable from one employer to new employer and thus the benefits of already done investment in VPF contributions remains intact
• In case of unfortunate demise of the account holder, the accrued investment will be without a glitch paid to the nominee or the legal heir

Difference between Provident Fund (PF), Employee Provident Fund (EPF) and Voluntary Provident funds (VPF)

Even though all the three types of investment options offered by the government are meant to deal with the social and financial security of various classes of people, there are various differences between these 3 popular investment types:

Features	Provident Fund	Employee Provident Fund	Voluntary Provident Fund
Eligibility	Any Resident Indian , except NRIs	Any Resident Employed Individual	Any Resident Employed Individual
Period of Investment	15 years	Up to retirement or resignation, whichever is earlier	Up to retirement or resignation, whichever is earlier
Employee Contribution on Basic + DA	N.A	12% of Basic salary	Voluntary (Upto 100%)
Employer Contribution	N.A	12% of Basic salary	N.A
Taxation on Maturity Returns	None	Tax Free	None
Tax  Rebate	As per section 80 C	As per section 80 C	As per section 80 C
Maximum Loan amount	50% after 6 years	Partial withdrawals is permitted	Partial withdrawals is permitted

VPF v/s NPS

The NPS (National Pension Scheme) is a government pension scheme, but is market-linked.  Investors can accumulate a retirement nest egg through a defined contribution which requires regular contributions by investors. 

Parameters	VPF	NPS
Contribution	12% (Not fixed) No mandatory contribution from employer	Minimum Rs.6,000 per financial year No maximum limit
Current Interest Rate	8.25%	Ranging from 8-14%; Based on investment objective
Tax Benefits	Investments up to Rs.1.5 Lakh are eligible for income tax benefits	Investments up to Rs.1.5 Lakh are eligible for income tax benefits. More than this, one can get additional deduction of Rs.50,000
Loan Facility	Available	Not Available
Annuity Pension Plan	Not Available	Mandatory
Premature Withdrawals	Withdrawals available after completion of at least 5 years of continuous contribution	Strict withdrawal rules. Maximum 20% premature withdrawal allowed
Investment Horizon	Till retirement or resignation	Till retirement

VPF Withdrawal Process

The Investments under Voluntary Provident Fund scheme has gained huge popularity amongst the service class and one of the prime reasons for this is the liquidity factor. The accumulated money in the VPF account can be withdrawn in the event of any unexpected and urgent financial emergency. However this is subject to few conditions. A depositor can withdraw their VPF amount for a various number of reasons, such as:

1. Towards any Medical expenses for the treatments of either the depositor and/or their family members
2. Family expenses such as Children’s higher education and their marriage
3. Towards the purchase/ construction of a house or any residential plot
4. Repayments of running home loan

• However in all the above scenarios it is mandatory for the VPF account to complete at least five years of existence, else the amount earned on interest shall be liable for proportionate tax deductions
• The withdrawal of funds in a VPF account can be done by the employee through a request letter and Form-31, which has to be submitted to their respective employer
• Form-31 which is basically an EPF fund application for advance is easily available across various government portals and the HR/ finance Team of all organizations. Also this can be easily downloaded from the EPFO website
• The requisite documents to be submitted apart from the form are details about the concerned employee, their postal address, the EPF account number and bank details where the maturity/ advance proceeds shall be credited, etc. for the purpose of bank details , the employee should furnish a cancelled cheque along with all the documents
• The entire document has to be submitted and later on attested by the concerned employer

Frequently Asked Questions

Q.1: Who can invest in Voluntary Provident Fund?

Only salaried individuals (employees getting monthly salary in a specific salary account) can avail the benefits of VPF

Q.2: Is VPF exempted from Tax?

Maximum Rs.1.5 lakh contributions are deductible under Section 80(c) of the Income Tax Act, 1961. And, the proceeds of VPF upon maturity are also tax free

Q.3: What is the maximum limit of investment in VPF?

There is no maximum limit of investment in this scheme. The contributions are allowed to be fixed by the employees voluntarily.

Q.4: Can I continue my VPF after job change?

Yes, VPF account can be continued even after you change your organisation. As the account is linked to the Aadhaar Card of the user, the process is quite easy.

Q.5: What is the difference between EPF and VPF?

VPF is an extended version of EPF. On one hand, EPF requires employees to make 12% contribution of the basic salary and dearness allowance. On the other hand, VPF is a voluntary scheme which allows the investors to electively decide the contribution amount.

Q.6: Can I have both EPF and PPF Account?

Yes, you can open both EPF and PPF Accounts

Q.7: How can I check my VPF Balance?

You can simply give a call on 011-22-901-406 to check your VPF balance.

Q.8: How much amount can I withdraw as loan from my VPF account?

There is no pre-fixed amount of withdrawal which can be made from a VPF account. However, withdrawals are possible only after completion of 5 years of continuous contributions in the scheme.