What is the Voluntary Provident Fund?
If you’re looking for a long-term investing plan with high returns and minimal risk, the Voluntary Provident Fund (VPF) is a great solution. This program, which is run by the Indian government, provides candidates with tax advantages.
The typical provident fund savings program includes the VPF scheme. In contrast, the contributor determines the monthly fixed investment amount provided to the plan under the VPF method.
- the interest rate of 8.1% p.a.
- Investing involves very little risk.
- It’s simple to move the money in the event of a job change.
- Opening a VPF account is simple.
Under the VPF initiative, employees are allowed to make contributions of their own to their provident fund accounts. The program is additionally known as the Voluntary Retirement Fund program. The 12% contribution each employee must contribute to their Employees’ Provident Fund (EPF) is not included in the plan.
The maximum contribution an employee may make to the plan is 100% of their basic pay and dearness allowance. Comparable to the EPF program is the VPF interest rate. Employers and employees are not required to make VPF contributions. The program does, however, have a 5-year lock-in period. The Indian government sets the VPF’s annual interest rate each year.
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Eligibility for VPF
Being an extension of the EPF, the VPF program only allows paid employees who receive payments every month into their salary accounts to make investments.
Paperwork needed to start a VPF account
Employees who wish to open a VPF account must provide the following documentation:
- It is necessary to file the certificate of company registration with the Ministry of Finance (MoF).
- Both Forms 24 and 49 need to be submitted.
- The memorandum and articles of association must be provided if the organization is a “Sdn Bhd.”
- It is necessary to provide a detailed company profile.
- The certificate of business registration must be offered.
- In order to open a VPF account, employees can inquire with their employer about any additional paperwork that may be required.
Benefits of VPF
The EEE category, which includes the VPF account, stands for Exempt-Exempt-Exempt. Employees who invest in the VPF can thereby benefit from tax advantages and make significant long-term gains. Some of the main benefits of a VPF account include the following:
Risk-free investment option: The scheme is managed by the Indian government, hence there are no risks involved. It is extremely safe to invest in a VPF account compared to other long-term investment choices provided by commercial companies.
High-interest rate: The VPF program has an interest rate of 8.1% per annum. Taxes are not applied to the interest that results from contributions.
Easy application process: Opening a VPF account is a pretty easy process. Employees can submit the registration form to their employer’s finance department and ask them to start a VPF account. The VPF account will function similarly to the current EPF account.
Simple transfer procedure Employees can easily move their VPF accounts from their previous employer to their new employer if they change jobs.
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Tax advantages provided by a VPF
One of the best investment options in India is thought to be the VPF account. A tax benefit of up to Rs. 1.5 lakh is available to employees under Section 80C of the Income Tax Act of 1961. Taxes are not applied to the interest that results from these contributions. However, the sum will be taxable if the interest rate exceeds 9.50% p.a.
Rate of interest on a VPF
The Indian government determines the interest rate, which is then updated annually. For the fiscal year 2021–2022, the interest rate is 8.1% p.a.From the previous interest rate of 8.65%, the interest has been lowered. A VPF account’s high-interest rate and tax advantages make investments there attractive. The interest rates for PPF and VPF are contrasted below:
|Financial Year PPF Rate of Intrest (p.a) % VPF Rate of Intrest(p.a)%|
|2021-2022 7.10 8.10|
|2019-2020 7.10 8.5|
|2018-2019 7.6to8 8.65|
|2017-2018 7.6to8 8.55|
|2016-2017 8to8.1 8.8|
|2015-2016 8.7 8.8|
|2014-2015 8.7 8.75|
|2013-2014 8.7 8.75|
How to withdraw funds from a VPF account
In the event of financial difficulties caused by medical problems, withdrawing money from a VPF account may be useful. Employees must submit Form-31 and a written request if they want to cancel their VPF.
Employees will be able to obtain Form-31 via the Human Resources (HR) department at their business or online through the government portal. All necessary paperwork must be submitted, along with the employee’s information such as their PF number, mailing address, and bank information. Furthermore, a voided check must be shown. All submitted documents must be self-attested.
VPF rules and regulations
The rules and regulations for the VPF account are listed below:
Employees are permitted to contribute 100% of their basic pay and dearness allowance to a VPF account, as opposed to 50% to an EPF account.
To their VPF accounts, employees are not compelled to make contributions.
The interest rate for a VPF account is set by the Indian government at the beginning of the fiscal year. When compared to prior years, the rate may rise or fall.
It is possible to withdraw the entire sum due at maturity at the moment of resignation or retirement. Also available to individuals is the transfer of VPF funds from one employer to another. The complete amount accumulated in the event of the account holder’s death will be distributed to the nominee or the legal heir.
A VPF account can only be opened by people who have an EPF account and are employed by organizations that are members of the Employees’ Provident Fund Organisation (EPFO). Opening a VPF account is not permitted for people who work for unorganized sectors.
People can open a VPF account anytime during the fiscal year. For a period of five years, investments made into the account cannot be halted.
On the VPF account, loans can be taken out in small amounts as partial withdrawals. The money that is withdrawn in cases when it is done so before the maturity period is taxable.