Voluntary Provident Fund or VPF is most beneficial but also the most ignored tax saving scheme. Monetarists or HR Managers will not recommend this as it doesn’t come with commissions, incentives or targets. This option is accessible only to salaried people who are already member of the EPF scheme. Twelve percent of basic salary is obligatory deduction towards the employer’s contribution to EPF and the same is put in by the employer as well. For instance, if you are contributing INR 25,000 annually towards it, you will have a balance of INR 50,000. If you want to contribute more, you can. This is where Voluntary Provident Fund comes to forefront. You also need to stick to the specified VPF Limit to evade taxation.
Voluntary Provident Fund is regarded at par with EPF in terms of tax perks and interest rates. To sum up, one can earn an interest rate of 8.75 percent currently on Voluntary Provident Fund as well as claim tax deduction as per the Section 80-C of the Indian Income Tax Act. Exemption from income tax at each one of three stages (namely, contribution/ investment, assimilation/ earnings and when you withdraw/ extend. The Interest Rate is in accordance with the market rates. It is 25 bps or 0.25 percent more than the usual 10 year G-Sec returns for the year before. Another reason VPF is a good option is that instead creating yet another account, it is consolidated with the EPF. Not only does it help with monitoring, but also helps to save on tax.
Voluntary Provident Fund is a safe and secure investment option for you to put aside a bit more than standard (12 percent of salary towards Employment Provident Fund or EPF) towards your golden years. This extra sum too will fetch you all the perks of EPF except that there will not be any contribution from the employer as there is for EPF. You enjoy the same interest rates and the returns are tax exempted (up to 9 percent at present) up to the limit of INR 70,000. Investment meet the requirements under the Section 80-C only up to the specified VPF Limit of INR 1 lakh. Upon maturity, you need not pay any tax. In short, the key point to remember here us that VPF has a higher rate than PPF.
VPF is an idyllic saving option if you are even a tad risk-averse, especially if you are not good at managing your financial portfolios but look for guaranteed returns. The distinct advantage of depositing in the VPF is that no extra asset is created, but it only get added to the EPF, meaning no added monitoring will be necessary. Investing in VPFs is comparatively easier as all you have to do is to notify the accounts department in office (or whoever is in charge) to deduct a certain amount from your gross salary on a monthly basis, which will go towards VPF. Thus, the VPF kind of functions like a regular monthly investment scheme without the hassle of filling forms or running around from desk to desk.