VPF: If you want to increase your retirement fund, then choose VPF option during job, full details

Most people have low salaries in the beginning of their careers. Especially those who are associated with the organised sector. During the job, a part of the salary is deducted every month in the name of PF and this fund provides social security to the employees working in the organised sector. 12% of the basic salary of the employees is deducted every month in the name of PF fund and deposited in the EPF account. The same amount is deposited in this account by the company.

This amount deposited in the EPF account during the job is given to the employees in the form of a large corpus after retirement. With this, they can easily fulfill their financial goals. For those who want a bigger retirement corpus than this, EPFO ​​has also given the option of Voluntary Provident Fund i.e. VPF. However, this is another form of EPF. That is, VPF is not possible without an EPF account. What is VPF? How different is it from EPF? Let’s take a look at all such aspects.

What is Voluntary Provident Fund?

Voluntary Provident Fund is a contribution made by employees which is more than the minimum contribution prescribed by the Employees’ Provident Fund Organisation (EPFO). However, the company still contributes an amount equal to 12 per cent of the employee’s basic salary to the VPF fund. No matter how much of the salary the employee decides to contribute to the VPF account, the company does not contribute more than 12 per cent. Many employees working in the organised sector opt for VPF as they do not have to make any other investment and it is convenient as the amount is deducted directly from their salary.

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How much return do you get?

The same return is received on deposits in VPF as is received on employee and company contributions in EPF account. This is the reason why VPF is considered a very attractive option for investment. Currently, interest is being received at the rate of 8.25 percent on deposits in VPF. The government keeps updating the interest rate given on EPF from time to time.

What is the lock in period and how much tax will be levied?

The lock-in period of VPF is 5 years. There is no tax on withdrawal of VPF deposits after completion of 5 years of service. However, if you withdraw VPF before that, you will have to pay tax on it according to your tax slab. If a working professional is unemployed for more than two months or when he retires, he can withdraw from his VPF contribution.

In VPF, you get the benefit of tax exemption under section 80C of the Income Tax Act. In this fund, you can claim tax exemption of up to Rs 1.50 lakh in a financial year. The interest received on deposits in VPF and the amount withdrawn are tax free. This is the reason why investment in it is considered to be of EEE category.

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How much portion of salary can be invested in VPF?

An employee can contribute up to 100% of his basic salary to VPF. There is no limit for this.

This is how you can start VPF

Making VPF contribution is very easy. All you have to do is inform your company’s HR that you are willing to increase your EPF contribution. After this, the company will deduct the amount from your salary which you want to invest as VPF. This is why VPF is a better tax saving option because it gives better returns and VPF contribution is deducted directly from the salary of the employees. Your money is also absolutely safe in VPF because EPFO ​​​​guarantees to return this amount.

When employees working in the organized sector leave their current company and join a new company, they can also transfer their EPF account. For this, an option has been provided by EPFO. Like EPF, VPF account can also be transferred. However, after joining the new company, the employee will again have to tell the company’s HR that he wants to invest in VPF. Once the VPF option is chosen, it is necessary for the employee to deposit money in it for at least 5 years.

(credit: cleartax)