Voluntary Provident Fund: Overview & Benefits
Voluntary provident fund (VPF) is a non-mandatory, voluntary contribution made by an employee into the EPF or employee’s provident fund. 12% of the employee’s contribution is added to the fund account and the voluntary addition is beyond the fixed percentage. As the provident fund is considered to be one of the most secure avenues for retirement, the surplus inclusion from basic salary and dearness allowance to VPF is widely beneficial.
Employers are under no obligation to contribute to their employees’ VPF portfolio. Likewise, an employee is also under no obligation to contribute to the Plan. Once the contribution is chosen in VPF, the same cannot be terminated or discontinued before the base tenure of 5 years completed. The interest rate of Voluntary Retirement Plan is decided by the Government of India at the start of each financial year.
Who can invest ?
A VPF is an extension of the EPF. The VPF option is available only to salaried individuals who receive their monthly payments through a specific salary account.
Benefits of VPF
In a simplified manner, the VPF is an extended version of EPF. It is only available for salaried people receiving monthly income through a certain salary amount. Needless to say, these voluntary provident fund benefits provide the employees with unmatched return rates, saving them from financial exigency.
The VPF falls under the EEE category ( EEE – exempt on contribution; exempt from the principal; exempt on interest) making it an excellent tax saving option. It also helps the employee amass a sizeable savings portfolio and help him during big life milestones.
a. Safe Investment Option
The scheme is managed by the Govt of India with fixed interest accrual. Hence, it is considered as a risk-free investment compared to the long-term investment ones offered by other private players.
b. Easy to Apply
To open a VPF account, an employee has to approach his HR/Finance team and advise them to raise a request for an additional contribution in the VPF through a registration form. The existing EPF account will serve as the additional VPF account.
c. High returns
Currently, the interest is accrued at 8.65% per annum under this scheme. Contributions up to 1.5 lakhs PA and interest accrued is exempt from tax under Section 80C, resulting in higher returns in a long-term perspective.
d. Easy transfer
The account can be transferred from one employer to another upon changing jobs.
The fund allows partial withdrawals as loans with also the possibility of complete withdrawals. If the withdrawal happens before the 5-year minimum tenure, then tax will be applicable on the accumulated maturity amount. Once the employee resigns or retires from the employment the final maturity amount is paid to him. At the time of the untimely death of the account holder, the nominee can get the possession of the accumulated fund in the VPF account.
The VPF fund is mainly popular as the accumulated money can be withdrawn at any given time. In case of an unforeseen financial emergency, one can always fall back to his VPF account. The account can be broken for many reasons which include:
a. Payments of medical bills for the individual and his kin
b. Cost-intensive events like higher education and marriage
c. Payments for house construction or purchase of new land/house
As voluntary provident fund scheme is considered to be an extension of the EPF scheme, this voluntary PF scheme is applicable to salaried individuals exclusively, who get their monthly pay via a pre-decided salary account. However, for people working in the unorganized sectors, PPF or Public Provident Fund account at a post office or local bank is a viable means.
VPF Registration Process
While there is no registration form for Voluntary Provident Fund, an individual who wants to avail the benefits of VPS needs to inform his/her HR or payroll team to convert his/her EPF to VPF. Here are a few simple steps that elaborate how this change happens-
a) While there is no registration form for Voluntary Provident Fund, an individual who wants to avail the benefits of VPS needs to inform his/her HR or payroll team to convert his/her EPF to VPF. Here are a few simple steps that elaborate how this change happens-
b) Once the department receives your form, they confirm the accuracy of the information furnished by you and change your basic EPF account to voluntary PF account, as requested. After that, the decided percentage which has been mentioned by you shall be deducted from your monthly salary as contribution to VPF.
For starters, you should be registered with employee provident fund and then you will be eligible for VPF. Then produce the mentioned documents:
a) MOF – Company registration certificate
b) Detailed company profile
c) Forms 49 and 24
d) Business registration certificate
e) Memorandum and articles of association, only if the organisation is an ‘Sdn Bhd’ You can inquire the employer further about other documents to be furnished while submitting the request for opening VPF account.