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  • VPF Rules and Guidelines

    VPF Rules and Guidelines

    What is VPF?

    One final goal for every salaried employee is saving for retirement. That is where provident funds play an important part. VPF stands for Voluntary Provident fund and it is an investment option where a salaried employee can set aside more than the normal compulsory deduction of 12% of basic salary as savings fund. It is one of the most preferred savings scheme for risk averse, salaried people because VPF interest rates are high. Also, any salaried employee with a VPF provision can open an account. Also, employees can avail a loan against the amount accumulated in the VPF account. An employee can also access the VPF funds in between their service and need not wait until the employment period gets over. The contribution is totally based on employee’s interest and there is also an option to break-in the contribution during certain months when expenses are expected to be higher.

    Benefits of Investing in VPF

    • You can contribute a maximum of 100% of basic salary and dearness allowance which is more than the conventional PF ceiling of 12% which is also mandated by the government.
    • Interest rate is equal to that of the PF, which currently stands at close to 9%. The withdrawal is also tax free.
    • There is income tax exemption at all stages - contribution, investment, accumulation and returns and also at the time of withdrawal.
    • Employees can access the VPF money for reasons like marriage, house purchase, children’s education etc.
    • The contribution to VPF is optional. There is no mandatory savings limit.

    Rules and Guidelines for VPF

    Here are some of the basic rules pertaining to VPF in India.

    • You cannot discontinue or withdraw out of a VPF scheme in the middle of the year.
    • VPF scheme can be availed only by salaried professionals.
    • If the direct tax code comes into effect, the entire maturity amount becomes taxable.
    • The income from interest becomes taxable if the interest increases over 9.50%.
    • You can contribute 100% of basic plus dearness allowance as investment in VPF.
    • If the VPF money is withdrawn within five years, you will have to pay tax on the interest amount earned from your contribution to VPF.
    • Interest rates for provident fund is based on the average 10 year G-sec yield for last years. The return from VPF may increase or decrease and hence, be prepared to face fluctuating interest rates.

    How to Enrol in VPF?

    • Only salaried employees are eligible to register for the VPF scheme.
    • If the company offers VPF option, the employee can opt for this during any point in the financial year.
    • The application form for VPF needs to be duly signed, filled & submitted to the accounts/finance/payroll of your company.
    • You can also request your employer to increase your contribution towards VPF by writing in request, asking for additional deduction from salary.

    Comparison Between VPF, EPF and PPF

    The following table gives an easy to follow comparison between different provident fund schemes.

    Account Types/Features

    VPF

    PPF

    EPF

    Tax Benefit

    Up to Rs.1 lakh under sec 80C

    Up to Rs.1 lakh under sec 80C

    Up to Rs.1 lakh under sec 80C

    Eligibility

    Employees in India

    All Indian’s other than NRIs

    Employees in India

    Employer contribution from Basic+DA

    NA

    NA

    12%

    Employee contribution from Basic+DA

    Up to 100% of basic and dearness allowance

    NA

    12%

    Tax Returns on Maturity

    Tax Free

    Tax Free

    Tax Free

    Investment Period

    Till retirement or resignation, whichever is earlier

    15 years

    Till retirement or resignation, whichever is earlier

    Interest rate (subject to change)

    8.7%

    8.7%

    8.7%

    Important VPF Related Reads

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