VPF – Voluntary provident Fund Eligibility, Interest Rates, Benefits, Calculator

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The Voluntary Provident Fund VPF is one such way to bump up your retirement savings amount. Not only this, it will also provide you the tax benefits as well. Basically, a Voluntary Provident Fund is a traditional version of Provident Fund Savings Scheme, where the subscriber retains the control to periodically assign a specific amount to his/her provident fund, as a part of his/her Voluntary contribution.

Asides from being a clever tax saving option, it also provides/offers a long-term savings option. This type of Provident Fund has become a quite popular tax savings instrument, for the employed sections of the society.

Contents

Eligibility Criteria for the VPF – Voluntary Provident Fund

The Voluntary Provident Fund is especially an extension of the Employee Provident Fund (EPF) where the applicants have to invest 12% of the contribution factor that applies to their traditional EPF Accounts. The Voluntary PF Option is mainly entitled to the employed sections or the salaried individuals who receive their monthly pay through a designated salary account. The people who are working under the unorganized sector or the non-salaried employees can open a PPF (Public Provident Fund) account at the Local Bank or the Post Office.

VPF Account Interest Rates

The Government of India decides the Interest Rates of the VPF for each Financial Year. The current interest rate of the VPF is 7.6% for the year 2016-17. The amount of money accumulated in the VPF Amount is eligible for the Tax Deduction under the Section 80C of the Income Tax Act. This Provident Fund Scheme interest scheme has attracted a lot of Indian’s to apply for it.

Government lowers Interest Rates of Small Saving Schemes and PPF…Read More

Benefits of the Voluntary Provident Fund (VPF)

  • Safe Investment Saving Option

The Voluntary Provident Scheme is offered and managed by the Government of India. Therefore it is tagged as the safest and trustworthy investment medium with no risk. It is usually associated with long-term investment plans that are offered by the Private Players.

  • Simple and Easy to Apply

This provident fund scheme is very easy to apply. All you have to do is to raise a request with the payroll/finance/ HR Team with regards to the opening of the VPF Account. You can do it by simply applying for the VPF Fund Registration form and immediately after, the EPF account will serve as the new VPF Account. This account can be opened at any time of the Financial Year.

  • High Rate of Interest

The VPF Accounts are known for their high yield. Currently, the rate of Interest is 8.65% which is still impressive. 

  • Potent Pension Fund

The amount that you have invested in the VPF can be withdrawn at the time of the Retirement or Resignation from the Current employment. These act as the long-term investments and comes in use if the regular monthly income is not available.

  • Tax Savings

The employee’s contribution towards the VPF Account is eligible for the deduction while accounting for the tax, to the tune of Rs 1 Lakh. The income that is generated through the interest is not taxable, provided the monies derived isn’t in excess of the base interest of 9.50%. The accumulated amount if withdrawn before the account completes 5 years subject to the taxation.

  • Easily Transferable

The VPF Account can be easily transferred from one employer to another employer. Thus, the change of the job is not going to affect the benefits of the regular VPF Contributions. Not only this, the accumulated money is also transferred to the nominee as nominated by you or your legal heir.

VPF Calculator

When you are involved in any long-term savings or investments, there always lies a pinch of curiosity in the final monetary account. That is what, a resourceful investor thinks while making any investment plan. Therefore, to solve these sorts of issues, there are simple online tools available. One of such innovative tool is the Voluntary Provident Fund Calculator.

The Voluntary Provident Fund Calculator makes the complex calculations within seconds. This provides an investor a basic knowledge of how much money should be invested periodically to attain a planned target payout. The VPF Calculator utilizes the following input points to enumerate the VPF Payment Strategy.

  • Base Monthly Salary
  • Percentage (%) of salary to be contributed to the VPF Amount.
  • Monthly Contribution to the Employees Provident Fund (EPF).
  • Employees Contribution to your EPF Account.
  • Current EPF Balance
  • Applicable Interest Rate.

VPF Registration Form

There is no specific registration application form for Voluntary Provident Fund. But however, if the employee is interested to invest some amount in the VPF, then he/she has to intimate the same to his/her payroll teams and the latter will be converted into the applicant’s EF Account to VPF Account. But for this procedure to happen, the concerned employer must be registered with the Employees Provident Fund Organization of India. The employee has to fill in a Business Establishment Registration Form. The form will be processed and will be taken action by the aforementioned EPF Office. Post this, the employer can participate in the EPF Routine and consequently, the concerned employees can request for the opening of the Voluntary Provident Fund account.

Various steps that are involved in the process are as follows

  1. The Employee requests the employer for the additional deductions from his/her salary in the favor of the Voluntary Provident Fund. This can be done any time of the Financial Year.
  2. The employee must fill in the basic KYC Form and sign it appropriately and forward it to the same payroll/ Finance/HR Department of his/her company.
  3. Upon reception of this form, the company’s payroll team will confirm the accuracy of the supplied details and graduate the employee’s basic EPF Account into the requested voluntary PF account. Thereafter, a stipulated percentage as mentioned by the employee will be deducted from his/her salary as the VPF Contribution.
  4. The Basic Format of the Voluntary Provident Fund Form must include the following details:
    1. The date from when the EPF Contributions are made.
    2. Status as not an “excluded” employee as stipulated in the EPF Scheme, 1952.
    3. Percentage of the salary that is permitted to get deducted as the contribution to the VPF Account. Also, the date is also included from when this will be applicable.

Tax Benefits from Voluntary Provident Fund Scheme

When we talk about the Financial Taxes and its effectiveness and tools and investment benefits then the Voluntary Provident Fund comes in priority. According to the latest regulations, the investor can relish a tax break-up of up to Rs 1 Lakh as stipulated by Section 80C of Indian Income Tax Act. All the investments in the VPF Account are considered from the employee’s pre-tax income. Further, the income that is derived from the interest amount from the VPF will not be taxed unless the interest rate exceeds or matches the rate of 9.50%. And if in case, the employee wants to terminate his/her account before the stipulated 5 years tenure then the tax will apply, otherwise, the withdrawal is deemed tax free.

Rules & Regulations that Govern the VPF Scheme

The Indian Government states that the Voluntary Provident Fund is one of the robust investment schemes which provides the benefits to the employed class of people. It has been seen that there is a segment of the population that has a buying power, financial foresight and propensity to create long-term plans. Along with that, this investment scheme provides a seamless, safe and involves a very minimal input of time and energy. In return for that, the employer also enjoys the robust pension fund, medium-term savings instrument that can mature in a certain period of time for a long-planned financial requirement. It also provides a high-interest rate and an easy management. Thus, we can say that the Voluntary Provident Fund has been a popular choice amongst the employed sections of the population.

Applying for the Voluntary PF is very simple. Below is the list that talks about the various rules and regulations that govern the Voluntary Provident Fund Scheme in India:

  • The employee can contribute as much as 100% of his/her salary towards the VPF Account. This contrasts with the EPF account wherein he/she can contribute a maximum of 12% of his/her basic salary.
  • The VPF Scheme is a subset of the Employee Provident Fund Scheme wherein the only differentiating factor is the percentage of the contribution that the concerned employee can appoint, as compared to the fixed 12% that applies to the EPF account. Thus, there is no separate account for VPF.
  • Only the salaried employees who are working with the organizations which are tied up with the EPFO can only open and maintain the VPF Account. The self-employed individuals and the people working in the unorganized sectors are not applicable to open a VPF Account.
  • The employers are under no obligation to contribute their employee’s VPF Portfolio.
  • The VPF Accounts can be opened at any point in time through the Financial Year. However, the investments to the same cannot be terminated/discontinued before the base of the tenure of 5 years is completed.
  • It is best to start the VPF Account at the start of the financial year. This will help in the better financial planning and tax savings. The onus lies with the concerned employees to affect this by intimating his/her employer about the same.
  • The applicants must also note that the VPF Account interest rates are decided at the start of the financial year by the Government. These rates can be either increment or decrement as compared to their previous years. Thus, all the applicants must pay an attention to the VPF Interest Rate that applies for the specific financial year before signing on the dotted lines.
  • If the Indian Government’s ambitious Direct Taxes Code (DTC) comes into effect then the entire VPF Amount at the time maturity period is liable to be taxed. The DTC is a proposed regulation from the Indian Government that simplifies the direct tax laws that are currently working in India. In short, the main objective of the Direct Taxes Code is to simplify and revise the Direct Tax Laws implemented in India.
  • The VPF account also allows partial withdrawals as loans, with also the possibility to complete withdrawals. If the withdrawal takes place before the account has completed 5 years of existence then the tax will be applicable on the accumulated maturity amount.
  • The Final maturity amount is payable at the time of the retirement or the resignation from the employment. The amount can also be transferred from one employer to another employer (in case of the EPF accounts m) and on the unfortunate death events of the account holder, the assigned nominee/legal heir will gain the possession of the accumulated balance in the VPF Account.

Documents Required to Open a Voluntary Provident Fund

As told earlier, the Voluntary Provident Fund is the fragment of the Employee Provident Fund. This can be applied by simply forwarding the request to the concerned company’s payroll/finance or HR Department. The application form mainly consists of the employee’s basic information that concerns the payroll team to deduct a specific percentage of an amount from the employee’s basic monthly salary as the VPF contribution.

The documents that are required for the Voluntary Provident Fund Registration are:

  • Your complete company profile
  • Certificate of Business Registration (Form 9 and Form D)
  • Forms 24 and 29.
  • MOF- Company Registration Certificate
  • If Company is a “Sdn Bhd”- Memorandum and Articles of Association
  • Other documents as when required (mentioned).

VPF Withdrawal Process and Withdrawal Forms

The investments that come under the VPF Scheme is quite popular and is one of the biggest reason is that, the money that is accumulated in the VPF account can be withdrawn at any moment in time. But there are certain conditions that are applied to these schemes. This accumulated money can be used immediately in case of emergency cases such as health issues etc. A depositor can break his/her VPF account for some fixed reasons. Some of them are as follows:

  • Medical treatments for the account holder or his/her family members.
  • Cost Intensive events such as higher education and marriage.
  • For the construction/purchase of the house/plot of land.
  • Home Loan Repayments.

Note:

If you are terminating your VPF account before 5 years of existence, then you will be charged tax deductions on the accumulated funds.

For withdrawing a certain amount from his/her VPF account, the person has to provide a Form 31 through his/her employer. Form 31 is known as the application of advance from the EPF Fund. This can be downloaded from the EPFO’s Official website. The form consists of the details of the employee, postal address, EPF Account Number, bank details etc. The application form must be attested by the concerned employer.

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