While most people understand what is PF, let’s take it a step further with VPF meaning. Also known as a voluntary provident fund, VPF meaning can be defined as an extension of the existing employee provident fund. The amount that an employee contributes above the 12% limit goes towards the voluntary provident fund. Employers are not under an obligation to contribute over and above the 12% limit. However, the employees can even contribute 100% of their basic wages towards the scheme if they wish to.
What is Voluntary Provident Fund?
Voluntary Retirement Fund or VPF meaning can be understood as an employee’s voluntary contribution to their provident fund account. However, it is important to keep in mind that this contribution towards VPF is beyond the 12% contribution that an employee already makes towards his EPF.
As an employee, you can contribute up to 100% of your salary towards your VPF account. However, there is no compulsion for an employee or an employer to contribute to the plan.
Also Read: What is EPF?
Benefits of Investing in VPF
Now that you have understood the VPF meaning, let’s understand the benefitsVPF provides that make it an attractive opportunity for salaried people:
Voluntary provident funds provide a high rate of interest. For the financial year 2021-22, the interest rate for VPF was 8.10% p.a. You can also avail of tax exemptions on the interest amount earned. With the rise in inflation, it is important to earn returns higher than the inflation rate to keep the money growing.
Easy Application Process
The application process for VPF is relatively simple. If you are wondering how to open a VPF account, you need to contact your employer’s finance team to open a VPF account by submitting the registration form. The current EPF account also functions as the VPF account. Such a hassle-free process makes it an attractive investment avenue for employees.
The Indian Government operates the provident fund scheme. Therefore, VPF is a safer option to invest in compared to market investments and other alternatives. With lucrative returns at such a low risk, VPF has gained a prominent place in the portfolio of risk-averse investors. It is also a great option for employees who hold more risk-oriented assets and want to reduce their overall portfolio risk.
Even if you change jobs, you can have your VPF transferred from one employer to the next.
Tax Benefits Available Under VPF
VPFs are also eligible for tax benefits to the investors. In the case of investment in VPF, an employee is eligible for deduction under section 80C of the Income Tax Act, 1961. The amount of deduction that can be availed is Rs. 1,50,000 for each financial year. Further, if an individual stays invested in the VPF for 5 years without any withdrawals, the maturity amount and interest become exempted from the income tax.
Who Can Invest in Voluntary Provident Fund?
Individuals working in unorganised sectors are not eligible to open VPF accounts. Only companies under the Employees’ Provident Fund Organisation with an EPF account can open VPF accounts.
EPF is mandatory for organisations employing more than 20 employees. Therefore, employees of such organisations can also contribute towards voluntary provident funds. Organisations with less than 20 employees can voluntarily choose to open EPF accounts for their employees. It is upon the employees and the employers to decide whether they want to open the EPF accounts. Only after such organisations enrol for EPF can their employees opt for VPF.
Documents Required for Investing in VPF
While we discussed VPF meaning, here are the documents required for investing in VPF:
- Registration certificate of the company with the Ministry of Finance (MoF).
- Form 49 and Form 24.
- Details of the company, i.e., complete company profile.
- Memorandum of Association and Articles of Association, if applicable.
- Business registration certificate.
Interest Rate of a VPF
The interest rate provided on VPF is the same as EPF, and the amount would be credited to your EPF account itself as there is no separate account for VPF. These interest rates are regulated by the Indian Government and are announced within the annual budget, which means that the interest rates on VPF or EPF can fluctuate with changing times.
Rules and Regulations of a VPF
Following are some rules and regulations of the VPF:
- Employee VPF contributions are not compulsory.
- The Indian Government decides the rate of interest for the VPF. Any interest rate increases or decreases is in the government’s hands.
- A total withdrawal from a VPF can be made at retirement or resignation from employment. If an employee changes employer, they can easily transfer their VPF account from the previous employer to the current one.
- In case the account holder passes away, the total amount accumulated in the VPF will be provided to the nominee or the legal heir, as the case may be.
- Partial withdrawals from the VPF accounts can be availed of in the form of loans against VPF. However, the sum becomes taxable if the withdrawal is made permanently before maturity.
Process to Withdraw Money from a VPF Account
You can withdraw your VPF money in case of unforeseen financial emergencies like medical bills, higher education, marriage, construction of a new property, etc.
In order to withdraw money, you can simply fill up Form-31, which you can get either from your employer’s Human Resources team or the Government portal online. Self-attested documents should be submitted with the form, including your postal address, PF number, bank information, and a cancelled cheque.
Otherwise, you can apply for PF amount withdrawal via Universal Account Number without your employer’s approval as well.
EPF has been popular among the employees. Voluntary provident funds further extended the benefits of the EPF. Being akin to EPF, it ensures that the employees benefit from safe and secure investments in VPF without many procedural hassles.
Frequently Asked Questions
As per the rules and regulations of VPF, individuals who are working in an organized sector can open a VPF account. Organizations open EPF accounts for their employees who can voluntarily choose to invest in VPF accounts.
Only salaried employees can open a VPF account. It is a smart choice for salaried individuals who can save a significant amount of time and energy on investing it on their own.
Any salaried employee who is looking to invest in a long-term financial plan is an ideal candidate. VPF accounts are most suited for people who are going to be retired soon or are looking for a safe pension fund option.
In terms of investment, there is no fixed minimum or maximum VPF limit. You can even contribute 100% of your salary as a VPF contribution. However, it is important to keep in mind that your employer is under no compulsion to contribute to your VPF account.
Although according to VPF meaning and withdrawal rules, the amount contributed to a VPF account cannot be withdrawn before the maturity period of 5 years. After 5 years, the individual can withdraw any amount out of the total sum that has been invested. However, in case of an emergency, an individual can partially or fully withdraw the amount, but that amount will be subject to taxation.
While PF and EPF are the same, most people often get confused between EPF and VPF. Although VPF is an extension of EPF, there still are certain differences.
The statutory limit for investing in EPF is 12% of basic salary and dearness allowance. Whereas, in the case of VPF, the maximum contribution allowed is 100% of the basic wages.
EPF contributions are more regulated than VPF contributions, especially as the EPF contributions are mandatory while the VPF contributions are voluntary.
Only employees can invest in voluntary provident funds. Further, VPF is ideally suitable for investors for whom a capital safety net is of paramount importance. The VPF is the Government of India’s scheme; investing in VPF assures capital security. Further, as returns are higher than the inflation rate, which currently stands at 6%-7%, VPF is an ideal destination for parking your funds.
EPF or Employee Provident Fund is compulsory in India, whereas VPF or Voluntary Provident Fund is optional.
Employers can only contribute up to 12% to the employee provident fund. Regarding the VPF, employers are not liable to contribute anything. VPF is for the benefit of the employees, and any voluntary PF contributions are solely by the employees.