All About Voluntary Provident Fund and Its Benefits

VPF or Voluntary Provident Fund denotes a scheme that comes under the ambit of the Traditional Provident Fund Saving Scheme. Under this scheme, employees can voluntarily contribute to their respective provident fund account. Moreover, an employee can also decide the amount of contribution that he/she needs to make every month.

Further, this scheme is also known as the Voluntary Retirement Fund Scheme. This scheme does not include the contribution of 12%made by an employee in his/her EPF (Employee Provident Fund) Account. However, the interest in VPF is similar to that of the EPF scheme.

It is significant to note thatit is not compulsory for an employee to contribute to a VPF. However, he/she wants then they can contribute up to 100% of theirbasic salary plus DA (Dearness Allowance).

Further, the lock-in period for this scheme is 5 year and the government has the authority to decide the rate of interest for it every year.

Eligibility for Voluntary Provident Fund

As we know the concept of Voluntary Provident Fund is an extension to the Employee Provident Fund, so only those individuals who receive salary on monthly basis are eligible to contribute in Voluntary Provident Fund.

Benefits of Voluntary Provident Fund

A Voluntary Provident Fund comes under the ambit of EEE Category (Exempt-Exempt-Exempt). That means an employee can enjoy both tax benefits and alarge amount of funds through VPF. Further, the Benefits of a Voluntary Provident Fund are as follows:

1. Safe and Secure to Invest: As we know, the VPF scheme is operated by the Government of India. That means it is one of the safest options to invest, and there is no risk involved in contributing in the scheme.
2. High-Interest Rate: Under this scheme, the interest rate is 8.50% p.a., which is very much higher than the rate offered by the EPF scheme. Further, the interest amount that is generated from the investments is also exempt from tax.
3. Easy Application Process: The procedure to open a Voluntary Provident Fund account is very simple and straightforward. An employee just needs to contact his/her employer’s finance team and ask them to open a VPF account for him. The employee also needs to submit the registration form for it. Further, the current EPF account of the respective employee will act as the VPF account for him/her.
4. Simple Transfer Process: In case an employee decides to change his/her job, then it is very simple and easy for him/her to transfer the VPF account of the previous company to the new one.

Documents Needed to Open a VPF Account

The documents needed to obtain a VPF account are as follows:

1. Certificate of Company Registration with the MOF (Ministry of Finance);
2. Form 24 and 49;
3. In case the company is “SDN” “BHD”, then the MOA (Memorandum of Association) and AOA (Article of Association) of the company;
4. Details about the Company;

Tax Benefits under the Voluntary Provident Fund

When it comes to several investment choices in India, the VPF (Voluntary Provident Fund) account is recognised among the best.

Further, as perSection 80C of the Income Tax Act, 1961, an employee isqualified for tax benefits of up to Rs1.5 lakhs.

Furthermore, the interest amount generated from these investments is also exempt from the domain of Income Tax. However, if the interest rate is more than 9.50% p.a., then thewhole amount will be taxable.

Interest Rate of Voluntary Provident Fund

The Interest Rates for a Voluntary Provident Fund is decided by the Government on a Yearly basis. The table given below displays a comparison of interest between PPF and VPF:

Disclaimer

We at Growth Begins aim to spread awareness among the People about the Personal Finance and Investment Opportunity, which will help them in their financial journey. In this blog, we have tried our best to provide you in-depth knowledge about the concept of the Voluntary Provident Fund and its Benefits. Hope you like this post