Voluntary Provident Fund

April 04, 2023

Introduction

EPF stands for Employee Provident Fund. It is a retirement benefit where an employer & an employee contribute to some extent every month.

VPF is an extension of EPF, where salaried employees are eligible to contribute to this scheme beyond their EPF limit.

Difference between EPF and VPF

EPF VPF
It is a Government Savings Scheme that has low risk and good returns. It is an optional investment to be made by an Employee above EPF which has no risk and high return.
Contribution is 12% of their Basic Salary and Dearness Allowance. Maximum Contribution is up to 100% of their Basic Salary and Dearness Allowance.
Here both Employer & Employee can contribute. Here Employees only can contribute.

Similarities between EPF and VPF

  1. Withdrawal done before the completion of 5 years is taxable, whereas if withdrawal is done after 5 years then it is tax-free.
  2. Sec 80C deduction provision is applicable.
  3. Interest rates will fluctuate every year.
  4. The interest rate is 8.1% for FY 2023-24

Advantages of VPF

  1. As VPF is a great option as it offers guaranteed returns and it is deducted directly from the salary. Employees need not be required to look at other tax-saving investment options.
  2. EEE Category: Exempt-Exempt-Exempt In this everything is exempt such as any Contribution, Interest on VPF, Principle amount.
  3. If we are changing our job from one company to another, then this VPF can be easily transferable.
  4. As this scheme is operated by the Government, there are no risks involved. It is safe compared to other Private companies.

Example

Mr. A earns ₹35000 per month (basic salary + dearness allowance), then his Contribution as per the standard percentage would be ₹4200 (35000*12%). Therefore, if he chooses to deposit ₹5000 per month to his EPF account, then his VPF would be ₹800 (5000-4200). Here the example is about Employee contribution only to know the difference between EPF & VPF.

Note: Salaried employee deposit in EPF account, whereas VPF is an optional deposit.



Note: Above details are meant for generalized situations and shall not be used as a legal basis for any particular situation readers may have. We do provide tax consultations for specific scenarios and can be reached through our contact us form.



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