The Voluntary Provident Fund is considered to be one of the best tools available in the market for individuals from the top tax bracket to handle the rising inflation. The VPF Interest Rates are revised by the government every year.
If you are a salaried individual and in a pursuit for a goofproof and secure investment option with guaranteed returns, then you do not even need to put a foot out of your office or look beyond it. You can join the Voluntary Provident Fund (VPF), which will fetch you the exact returns as your regular Employee Provident Fund (EPF) as well as an added income absolutely free from taxation.
VPF Interest Rates & other facts
- In companies and enterprises that has more than 20 staffs, 12% of the gross salary is deducted monthly towards the Employee Provident Fund (EPF). Same amount will be reduced for VPF as well.
- The VPF can be considered as the extra contribution made to your EPF over the compulsory 12%. But unlike how it is for EPF, the employer will not contribute towards VPF.
- The rate of interest offered for your VPF will be the same as that for your EPF, which is 8.5% as per the current financial year.
- Interest rates on VPF schemes are reviewed by the government annually. VPFs also enjoy special tax benefits as specified in the Section 80C of the Indian Tax Act. And the interest earned this way is free from taxation.
- Income from Earned Interest: You cannot be taxed on the interest accumulated unless the interest rate goes beyond the legal rate of 8.5% as of now.
- If the cash is taken out within the initial five years of service, then interest income can be taxed. So think well before you opt for this scheme as part of your regular financial planning.
- Interest income will be taxed if it escalates above 8.50%.
- Please keep in mind that VPFs are long-standing savings and administered by the same set of VPF guidelines that are applicable to other provident fund schemes.
- Earnings after maturity from VPF are exempted from tax given that you continue in service for more than five years. If you leave your job quit before five years and requires the maturity amount, it would be taxed.
- If needed, you can apply for a loan against the funds assimilated in the account for any personal reasons such as wedding or purchasing a home or car etc.
- VPF is highly recommended for those in the top tax bracket.
- VPF is also considered as a good tool against inflation.