Preparing for retirement is an important part of everyone’s life, but it can also be stressful and challenging. There are many options for individuals to save money and put a substantial amount away while they work, two of which are the EPF vs VPF.
Workers can save for retirement with the mandatory EPF regardless of their job position, but with the voluntary VPF, they can save even more money. Since both strategies have difference between VPF and EPF and disadvantages, choosing one is a struggle. Learn more about the VPF vs EPF here!
What is VPF?
An acronym for the voluntary provident fund is VPF. Its advantages to employees are comparable to those of India’s Employee Provident Fund (EPF). While employees are obligated to pay into the EPF, they are also allowed to contribute more via the VPF voluntarily.
Employees are not obligated to contribute the minimum amount to their EPF accounts, although they are free to do so if they so choose. These voluntary contributions are added to the employee’s EPF account alongside the usual employer and employee payments. They are deducted from the employee’s salary.
By allowing employees to put away more than the minimum amount each month, the VPF increases the likelihood of having a comfortable retirement fund when they leave. Volunteer contributions to the VPF also earn interest at the same rate as the EPF so the additional savings will grow with time.
Eligibility Criteria
Employees are required to meet specific criteria before they may invest in VPF-
- In order to fund their salary account, investors need a consistent source of income, such as a paycheck.
- It is necessary to activate the worker’s EPF account.
How to Invest in VPF?
The Voluntary Provident Fund (VPF) in India is accessible to contribute to. Employee Provident Fund (EPF) contributions are mandatory for both employers and employees, but the Voluntary Provident Fund (VPF) allows workers to put more money in if they so choose. Following these steps will help you invest in VPF:
- Find out whether your employer supports your VPF contributions by asking them. Not all organizations allow VPF, so it’s best to check with the HR or finance department.
- By filing a formal declaration, you may ensure that your employer is informed of your plan to donate to VPF. Disclosures are usually required at the beginning of the fiscal year, however, certain organizations may allow them at other times.
- Determining your desired contribution amount is the first step in contributing to VPF. Your base wage and your employer’s permission determine how much you may contribute, which is frequently limitless.
- Once your employer confirms your declaration, the amount you’ve chosen will be automatically withdrawn from your salary and placed into your VPF account, together with the employer’s contribution to EPF.
VPF Maturity Period
While PPF permits partial withdrawals after a 15-year lock-in period, VPF imposes taxes on withdrawals made before the lock-in period and allows total withdrawals only after 5 years.
What is EPF?
Employee Provident Fund is popularly known as EPF. It is a retirement savings scheme in India that the government requires employees to participate in.
Workers may put money away for retirement via the EPF by having a percentage of their paychecks withheld each month. An agreed-upon percentage goes to the employer and an equal amount goes to the worker. These contributions are kept and grow with interest during the employee’s employment.
A government-appointed institution or recognized body oversees the funds in the EPF. The whole sum, including interest and principal, is accessible to the employee upon reaching retirement age or meeting certain conditions, such as quitting, becoming handicapped, or facing a financial emergency.
Workers who are concerned about the safety of their retirement savings generally choose it because of its special tax benefits, long-term growth potential, and stability.
Eligibility Criteria
Participation in the Employees’ Provident Fund (EPF) in India is contingent upon fulfilling the following criteria:
- The EPF Act of 1952 mandates that all businesses subject to it pay EPF. This kind of organization often employs twenty people or more.
- Anyone working in the public, private, or mixed sector may become a member of the EPF
- Anyone who works for a company and receives a monthly salary plus a dearness allowance of up to ₹15,000 is eligible to contribute to the EPF. The EPF offers workers the chance to contribute more of their income voluntarily.
- Some workers, such as those involved in casual labour, are not covered by the EPF.
How to Invest in EPF?
The Employee Provident Fund (EPF) has an easy-to-understand investment philosophy. Here are the steps to deposit funds into EPF:
- Are you an employee of an EPF-covered organization? If so, you should research whether or not your company is obligated to follow the EPF Act. The government mandates that all businesses with 20 or more employees establish EPFs.
- You must be enrolled and given a unique EPF account number by your employer to participate in the Employees’ Provident Fund Organization (EPFO).
- Check your pay stub monthly to ensure that the EPF contribution has been deducted. Your company will typically contribute 12% of your basic salary, and you may anticipate a deduction of 12% as well.
- Keeping track of your contributions to the EPF is simple since you can see them on your pay stubs or the EPFO website.
- A declaration form known as Form 11 is required of all new hires. This form is a record of all of your employment history that will be useful to your employer when determining your EPF contribution
- Send your employer the completed Form 2 (Nomination Form) to choose a beneficiary to receive your EPF contributions.
- Use the EPFO to maintain accurate Know Your Customer (KYC) records. Details like Aadhaar, PAN, and bank account information are part of this. Keep this information up-to-date at all times.
- Upon confirmation of all procedures, your EPF will be activated.
EPF Maturity Period
Regarding the maturity periods, the EPF reaches maturity when the subscriber reaches the age of 58 years.
Conclusion
Employee Provident Funds (EPFs) and Voluntary Provident Funds (VPFs) are two retirement savings schemes that are contrasted based on the difference between EPF and VPF. Unlike EPF, a mandatory savings scheme with set contributions, VPF allows employees to freely add more money to their EPF accounts.
Since EPF is a regulated scheme, you may rest certain that your retirement money will grow gradually and stay put. It may be a suitable match for those who want stability, value a disciplined savings approach, or are risk-averse. The EPF attracts many workers due to the mandatory nature of payments and the prospect of employer matching.
FAQ’s:-
In most EPFs, the employer’s contribution and the employee’s base wage are set at 12%. The government determines the EPF returns which are often fixed, but they are reliable and safe. Workers can save more than the mandatory 12% for retirement via the VPF, and their contributions are entirely voluntary. The same entity supervises the VPF and the EPF, hence the outcomes are often indistinguishable.
Interest on both EPF and VPF is compounded annually and is calculated on the total accumulated amount, including the principal and previously accrued interest. The interest rates are announced by the EPFO.
Yes, employees can contribute to both EPF and VPF simultaneously. However, the combined contribution cannot exceed the prescribed limit.
While there is no upper limit for VPF contributions, the total EPF (employee and employer contributions) cannot exceed the prescribed percentage of the basic salary.
Yes, the interest rates for both EPF and VPF are usually the same, as they are declared by the Employees’ Provident Fund Organization (EPFO) annually.
VPF is available for employees covered under EPF, and it is entirely voluntary. Employees can choose to contribute a higher percentage of their basic salary to VPF.
Employees who want to save more for retirement may do so via the VPF, which allows them to contribute more than the mandatory EPF share. Considering factors like liquidity needs is crucial since the VPF contributions are locked up until retirement or certain conditions are satisfied. As a compromise between liquidity and mandatory savings, EPF allows partial withdrawals for necessities such as housing, education, or medical emergencies.
No, VPF and EPF withdrawals are processed together when an employee decides to withdraw their provident fund. The withdrawal is subject to specific conditions.
Similar to EPF, VPF contributions qualify for tax benefits under Section 80C of the Income Tax Act, making them eligible for deductions up to a specified limit.
You may get a tax break for your EPF and VPF payments (up to a limit) under Section 80C of the Income Tax Act. In contrast, withdrawals from EPFs and VPFs are subject to different tax rates. In most cases, you may withdraw tax-free from an EPF after working continuously for five years, but with a VPF, you can withdraw tax-free at any point in your career.
Yes, employees can stop or modify their VPF contributions at the beginning of each financial year. The decision to contribute or not is entirely voluntary and can be adjusted annually.