What is VPF (Voluntary Provident Fund)?
Voluntary Provident Fund (VPF) is an optional retirement savings scheme that allows salaried employees to contribute more than the mandatory 12% EPF deduction. VPF offers the same guaranteed interest rate as EPF (currently 8.25%) and is one of the safest retirement investment options.
Key Features of VPF
- Interest Rate: Same as EPF - 8.25% per annum (FY 2025-26)
- Contribution Limit: Up to 100% of Basic + DA (max 88% extra beyond mandatory 12% EPF)
- Lock-in Period: Same as EPF - withdrawable after 5 years or retirement
- Tax Benefits: Principal qualifies for Section 80C deduction (up to ₹1.5L limit)
- Interest Tax: Tax-free up to ₹2.5L annual contribution; taxable beyond that
- Employer Contribution: No employer matching for VPF portion (only for mandatory 12% EPF)
VPF vs EPF vs PPF Comparison
| Feature | EPF | VPF | PPF |
|---|---|---|---|
| Interest Rate | 8.25% | 8.25% | 7.1% |
| Who Can Invest | Salaried (Mandatory) | Salaried (Voluntary) | Any Citizen |
| Employer Match | Yes (3.67%) | No | No |
| Max Investment | 12% of Basic | 100% of Basic | ₹1.5L/year |
| Lock-in | Till retirement | Till retirement | 15 years |
Tax Treatment of VPF
Contributions: VPF contributions qualify for Section 80C deduction up to ₹1.5 lakh (combined with EPF, PPF, ELSS, etc.).
Interest: Interest on total EPF + VPF contributions up to ₹2.5 lakh per year is tax-free. Interest on contributions exceeding ₹2.5 lakh is taxable at slab rates.
Withdrawal: Withdrawals after 5 continuous years of service are completely tax-free.
Frequently Asked Questions (FAQs)
What is VPF (Voluntary Provident Fund)?
VPF (Voluntary Provident Fund) is an extension of EPF where employees can voluntarily contribute more than the mandatory 12%. VPF offers the same 8.25% interest rate as EPF but has no employer matching contribution.
What is the maximum VPF contribution limit?
Employees can contribute up to 100% of their basic salary + DA to VPF. There is no upper monetary limit, but the total contribution (EPF + VPF) should not exceed your basic salary + DA.
Is VPF interest taxable?
Interest on combined EPF and VPF contributions up to Rs. 2.5 lakh per year is tax-free. Interest on contributions exceeding Rs. 2.5 lakh is taxable at your income tax slab rate.
Can I change my VPF contribution anytime?
Yes, you can increase or decrease your VPF contribution at any time by informing your employer. However, changes typically take effect from the next pay cycle. Some employers may allow changes only during specific periods.
What happens to VPF when I change jobs?
VPF balance gets transferred along with your EPF balance to your new employer using your UAN (Universal Account Number). If the new employer doesn't offer VPF, your existing VPF balance continues to earn interest until withdrawal.
Should I invest in VPF or mutual funds?
VPF offers guaranteed 8.25% returns with zero risk, making it ideal for debt allocation in your portfolio. Mutual funds offer potentially higher returns (12-15%) but with market risk. A balanced portfolio should include both.
Can I withdraw VPF before retirement?
VPF follows the same withdrawal rules as EPF. Partial withdrawal is allowed for specific purposes like medical emergency, home purchase, marriage, or education after completing certain service years. Full withdrawal is allowed after retirement or 2 months of unemployment.
VPF vs PPF: Which is better?
VPF offers 8.25% interest vs PPF's 7.1%, making VPF more attractive. However, VPF is only for salaried employees and cannot be continued after job change if new employer doesn't offer it. PPF is more flexible.
What happens to VPF after job change?
VPF transfers with your EPF when changing jobs via UAN. New employer must offer VPF for continued contribution. If new employer doesn't have VPF option, existing balance still earns 8.25% interest until retirement/withdrawal.