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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    • If the VPF money is withdrawn within five years, you will have to pay tax on the interest amount earned from your contribution to VPF.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




    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


    Employees in India

    All Indian’s other than NRIs

    Employees in India

    Employer contribution from Basic+DA




    Employee contribution from Basic+DA

    Up to 100% of basic and dearness allowance



    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)




    VPF Benefits, Procedure

    Voluntary Provident Fund, known as VPF, is an attractive investment option for salaried employees. Over and above the mandatory EPF contribution amounting to 12% of the basic salary, the employee can choose to contribute an amount higher to increase the investment in their EPF account. However, if the employee opts to increase their PF contribution, the employer is under no obligation to increase theirs as well. The VPF is available only to salaried employees in India. This option is a smart choice for salaried individuals as the contribution is deducted directly from the salary saving time and energy on investing it on your own. Furthermore, tax benefits will automatically be calculated in the Form 16 given by the employer.

    Maximum Amount Contribution to VPF

    An employee can contribute a maximum of 100% of the Basic Salary and Dearness Allowance.

    How to Invest In VPF

    Applying for Voluntary Provident Fund is extremely simple. The process requires the employee to write to the employer or concerned HR person requesting them to increase the PF contribution by the amount they desire. This option is available at any point of time during the financial year, unless the employer has specified their own requirements. A VPF Form will need to be filled and signed and then submitted to the accounts department or the concerned person in your company. The VPF Form only requires details such as the amount you would like to contribute from your basic salary and your dearness allowance.


    • Once you have opted for VPF, you cannot discontinue the investment mid-year.
    • Before opting for VPF, it’s important to know that if you withdraw money within the first 5 years of service, then the interest becomes taxable.
    • The responsibility of getting the VPF enrolment falls on the employee who must request their employer.
    • Most employers would like their employees to start their VPF at the start of the financial year.
    • If the interest income increases above 9.50% it will be taxable.
    • VPF is available only to salaried individuals.
    • The risk of interest rates falling are higher with this investment as the interest rates are subject to change every year.
    • If Direct Tax Code comes into effect, then the entire maturity value will be taxable.

    How can I withdraw money from my VPF investment?

    Once the contribution is made to VPF, it goes into the same fund as the EPF. The withdrawal rules of EPF will apply to the VPF contributions as will.

    You can make withdrawals through the following avenues:

    • Apply for PF amount withdrawal via UAN (Universal Account Number) without the employer’s approval.
    • You can also submit your PF withdrawal application directly to the regional PF Office. You need to get your ID and the form attested by a bank manager, gazetted officer or a magistrate, post or sub-postmaster, notary public or president of the village panchayat.

    You can withdraw money from the EPF account for reasons including medical treatment marriage, purchase of plot or construction of house, home loan repayment, home renovations, retirement, migration abroad and other such reasons.

    Is VPF a good way to save for your retirement?

    Investing in EPF and VPF alone is not the best way to save for your retirement. With the EPF and VPF scheme, you will receive a fixed rate of interest at around 8%-9% for the entire tenure of the account. Though the Provident Fund scheme is extremely safe, upon retirement, the amount saved up will be sizeable but may not be enough to cover the rising costs of living and inflation of the economy. Taking this into consideration, investing in EPF and VPF alongside other investments is advisable. For example, mutual funds and SIPs in diversified equity funds will result in much higher returns. By investing in both, you can reap the benefits of a fixed-income product as well as a long-term growth product. It’s always advisable to invest in different avenues rather than keep all the eggs in one basket.

    Important VPF Related Reads

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