All About Voluntary Provident Fund Scheme

A Voluntary Provident Fund or VPF is an optional fund contribution from employees towards a provident fund account. It is managed by Employees' Provident Fund Organisation (EPFO). While EPF is mandatory, VPF is a non-obligatory long-term investment method. Let us now understand the nuances of this provident fund.

Table of Contents

• Why Should You Invest in a Voluntary Provident Fund?
• VPF tax benefits
• How to start investing in VPF?
• Who can invest in VPF?
• Do you need to open a VPF account?
• How to check VPN contributions?
• Lock-in Period
• Withdrawal Conditions

Why Should You Invest in a Voluntary Provident Fund?

You should invest in the VPF scheme for the following reasons:

1. The Government of India allows employed individuals to invest in VPF to ensure that employees can have a safe and long-term investment option. 
2. The rate of interest for the Voluntary Provident Fund is higher than traditional investment options. 
3. It is a safe investment option with less risk and high returns.
4. There is no limit on investment amount. Employees can contribute any percentage of their salary towards VPF. They are allowed to contribute even 100% of their basic salary and dearness allowance.
5. Returns earned from VPF as well as the maturity amount are tax-free. It qualifies for tax deduction under section 80c of the Income Tax Act, 1961.
6. Voluntary Provident Fund is managed by your employer which makes it easier for employees to invest in.
7. You can also take a loan over VPF contributions.
8. Under certain conditions, employees also have the option of partial withdrawal.

VPF Tax Benefits

The following tax benefits on investing in VPF:

1. Contributions: VPF contribution is eligible for tax deduction under Section 80C of the Income Tax Act. Tax deduction is applicable upto a limit of ₹1.5 lakh per financial year.
2. Interest Earned: The interest earned on VPF contributions is also tax-free, provided the total contribution (EPF + VPF) does not exceed ₹2.5 lakh in a financial year. Beyond this limit, interest earned may be taxable.
3. Withdrawals: The amount withdrawn from VPF after the completion of the lock-in period (5 years) is tax-free. However, premature withdrawals may be subject to tax, depending on the conditions under which the withdrawal is made.

Is Investing in VPF Mandatory?

If you want to invest in VPF, you can. In case, you don't want to do so, you can choose not to invest in VPF. However, once you enrol in VPF, it is compulsory to continue it for a minimum of 5 years, which is its base period. For the current financial year 2023-24, the interest rate on VPF is 8.15%

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How to Start Investing in VPF?

First of all, you need to know if you are eligible to invest in VPF. Let us go through the eligibility criteria.

Who Can Invest in VPF?

You can invest in the VPF scheme only if you fulfil the following requirements

1. You must be a salaried employee who is working for an organization that must be covered under the Employee Provident Fund (EPF) scheme.
2. It is required that you work for a company that is a part of the organized sector. 
3. An active existing EPF account is required.
4. There is no age limit.
5. Submit a written request to your employer or your HR department that you are interested in making VPF contributions. Along with that, you will be required to submit a VPF application form that you can collect from your employer. This can be done at any time in a financial year.

What Happens Once You Are Approved For VPF Contribution?

Here is what happens in chronological order:

1. After you have submitted the request for VPF, your HR or finance department will review your form. They will verify your details and ensure that you meet the eligibility criteria. 
2. Once you have been approved for the VPF enrollment, your company will make adjustments to your payroll. 
3. Every month, a specific amount will be deducted from your salary for VPF contribution. You are free to choose the amount that you want to invest in VPF. Do remember, that the company will continue to deduct your EPF amount. 
4. From the next payroll cycle, the VPF contribution amount will be deducted automatically from your salary.
5. You will receive annual statements of your VPF contribution as well as the interest that you have earned.

Do You Need a VPF Account?

No, you do not need to open a Voluntary Provident Fund account. An EPF account holder does not need to worry about the account opening process. Both VPF and EPF are managed by the Employees' Provident Fund Organisation (EPFO). Therefore, VPF contributions go to your provident fund account where your EPF contributions are being deposited. 

How to Check VPF Contributions?

You can check your VPF contributions through the following methods:

1. You will receive annual statements to check your VPF contribution.
2. You also have the option to check VPF contributions via the EPF portal.
3. Use mobile apps such as ‘m-EPF’ or UMANG to track contributions.
4. Send an SMS to 7738299899. Type ‘EPFOHO UAN ENG.'

Lock-in Period

1. Lock-in Period 

For a VPF account holder, there is a minimum 5 years of lock-in period. On withdrawing from the VPF account before the maturity period will lead to penalty or tax implications. However, under the following circumstances, VPF withdrawal is allowed. For pre-maturity withdrawal, you will have to produce documents specified and fulfil the conditions set by EPFO. 

Exceptions to Lock-In Period

Pre-mature withdrawal is allowed under the following circumstances

1. Medical Treatment: Withdrawals are allowed for the medical treatment of the account holder, spouse, children, or dependent parents. This may include both major surgical operations and treatments for serious illnesses.
2. Education Expenses: Funds can be withdrawn for financing the education of the account holder's children. This includes expenses for higher education in India or abroad.
3. Marriage Expenses: Withdrawals are permissible for the marriage of the account holder or their children, which can help cover related expenses.
4. Home Loan Repayment: If you have a home loan, you can withdraw from your VPF to repay the loan. This is usually subject to certain terms and conditions.
5. Purchase or Construction of House: Withdrawals are allowed for the purchase or construction of a house or a flat. This includes the purchase of a plot for the construction of a dwelling unit.
6. House Renovation or Alteration: You can withdraw funds for major repairs or alterations to your existing house.
7. Pre-retirement: Withdrawal is allowed once you reach a certain age, typically within one year of retirement or after reaching a specific age like 54 years.

VPF Withdrawals Conditions

After 5 years, you can withdraw partial or complete VPF contribution along with the interest. Here is the process to withdraw the VPF amount:

1. Submit a Withdrawal Request: Contact your employer’s HR or finance department and submit a written request for withdrawal.
2. Fill Out the Required Form: Complete the necessary withdrawal form, which is often Form 31, providing details like your EPF account number and the amount you wish to withdraw.
3. Attach Relevant Documents: Depending on the reason for the withdrawal, attach the required supporting documents. This could include medical bills, educational fee receipts, wedding invitations, or home loan statements.
4. Employer’s Approval: Your employer will verify and approve your withdrawal request.
5. Submission to EPFO: The employer will submit the request to the Employees' Provident Fund Organisation (EPFO).
6. Processing by EPFO: EPFO will process your application and, upon approval, the funds will be credited to your bank account linked with the EPF account.