All about VPF (Voluntary Provident Fund)

Lesser-Known Facts About VPF (Voluntary Provident Fund)

Key Features of VPF: 

• Extension of EPF, Not a Separate Scheme : Voluntary Provident Fund is not a separate fund — it is an extension of the Employee Provident Fund (EPF). Only salaried employees contributing to EPF can opt for Voluntary Provident Fund. Contributing to a VPF account is not mandatory; it’s entirely at the discretion of the employee. Unlike EPF, employees can contribute up to 100% of their Basic Salary + Dearness Allowance to the VPF account.

• Government-Declared Interest Rate: The Government of India revises the VPF interest rate at the beginning of each financial year. It may increase or decrease based on macroeconomic factors.

• Transferable Between Employers: VPF balances can be transferred from a previous employer to the current employer, ensuring continuity of the account.

• Full Withdrawal at Maturity: The total accumulated amount (contributions + interest) can be withdrawn at the time of resignation or retirement.
• No Automatic Enrollment :  You must request in writing to your employer to start VPF. It can typically only be modified at the start of a financial year, depending on company policy.

• Nominee Benefits: In the unfortunate event of the account holder’s demise, the nominee/legal heir receives the entire accumulated corpus.

• Visible in EPFO Passbook: VPF contributions and interest appear in your regular EPF passbook, making tracking easy.
• 🇮🇳 Safe & Government-Backed: Since EPF/VPF is managed by the EPFO under the Ministry of Labour, it is considered one of the safest investment options.
• Can Be Stopped or Changed (But Limited Window): Once opted in, you may not be able to alter the VPF contribution mid-year, unless the employer’s policy allows it. Some companies lock the contribution amount for the year.

Voluntary Provident Fund (VPF) – Rules & Regulations

• Tax Benefits (EEE Regime): VPF enjoys Exempt-Exempt-Exempt tax treatment: Contribution: Deductible under Section 80C (within INR 1.5 lakh limit). Interest: Tax-free (up to a limit, see below). Maturity: Fully tax-free if criteria are met.
• Tax on Interest for High-Income Earners: From FY 2021–22 onwards, if your annual employee contribution to EPF + VPF exceeds INR 2.5 lakh, interest earned on the excess is taxable.  If there is no employer contribution (e.g., government employees with GPF), the threshold is INR 5 lakh.
• Account Opening Window: VPF accounts can be opened anytime during the financial year.
• Lock-in Period and Withdrawal Rules : Partial withdrawals are allowed in the form of loans. Premature withdrawal may attract tax liability on the interest earne,  VPF has a 5-year lock-in for tax-free withdrawal. Premature withdrawals are allowed for  Marriage Medical emergencies House purchase/construction Higher education, however, tax benefits may be reversed if withdrawn before 5 years. Once opted in, contributions to the VPF account cannot be discontinued for 5 years (to retain tax-free status).
• Interest Rate Same as EPF : VPF earns the same interest rate as EPF, which is decided by the EPFO every year (8.15% for FY 2023–24). Returns are compounded annually, making it more attractive for long-term, risk-averse investors.

• You can contribute up to 100% of Basic + DA : Only salaried employees covered under the Employees’ Provident Fund Organisation (EPFO) are eligible. Individuals in the unorganised sector are not allowed to open a VPF account. You can contribute up to 100% of your basic salary and Dearness Allowance voluntarily (beyond the mandatory 12%). However, your employer is not obligated to match the extra contribution.

What is the difference between VPF and EPF?

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