What is VPF (Voluntary Provident Fund)?
Voluntary Provident Fund (VPF) is an extension of the Employee Provident Fund (EPF) scheme that allows salaried employees to contribute more than the mandatory 12% of their basic salary towards their provident fund. VPF contributions earn the same interest rate as EPF, currently 8.25% per annum for FY 2025-26.
VPF is an excellent option for risk-averse investors who want to build a larger retirement corpus with guaranteed, tax-efficient returns. Unlike EPF, there is no employer matching for VPF contributions.
VPF Contribution Rules
• Minimum: No minimum (any amount above 12% EPF)
• Maximum: Up to 100% of Basic Salary + DA
• Total (EPF + VPF) cannot exceed Basic + DA
Example for ₹80,000 Basic Salary:
• EPF (Mandatory): 12% = ₹9,600/month
• VPF (Optional): Up to 88% = ₹70,400/month
• Maximum Total: 100% = ₹80,000/month
How to Opt for VPF?
To start VPF contributions:
- Submit a written request to your HR/Payroll department
- Specify the percentage of basic salary you want to contribute
- VPF contributions will be deducted from your next salary
- Amount credited to your existing EPF account (same UAN)
Note: Once opted, you must continue for minimum 5 years. You can modify the contribution percentage, but cannot opt out mid-year.
VPF Interest Calculation
VPF interest is calculated exactly like EPF - monthly on the running balance, credited annually.
Interest = Opening Balance × Monthly Rate
+ (Monthly Contribution × Months Remaining / 12) × Annual Rate
Total annual interest credited on March 31st
VPF Tax Benefits and Rules
- Section 80C: VPF contributions qualify for deduction up to ₹1.5 lakh combined with other 80C investments
- Tax-Free Interest: Interest on combined EPF+VPF contributions up to ₹2.5 lakh/year is tax-free
- Taxable Interest: Interest on contributions exceeding ₹2.5 lakh is taxable at your slab rate
- Lock-in Period: 5 years minimum; withdrawals before 5 years are taxable
- Maturity: Completely tax-free after 5 years of continuous service
VPF vs Other Investment Options
| Feature | VPF | PPF | ELSS |
|---|---|---|---|
| Interest/Returns | 8.25% (Guaranteed) | 7.1% (Guaranteed) | 12-15% (Market-linked) |
| Risk | Zero | Zero | High (Equity) |
| Lock-in | 5 years | 15 years | 3 years |
| Max Investment | 100% of Basic | ₹1.5 Lakh/Year | No Limit |
| Eligibility | Salaried Only | All Indians | All Indians |
When to Consider VPF?
- Risk-Averse Investors: If you prefer guaranteed returns over market volatility
- High Income Earners: If you've exhausted ₹1.5 lakh 80C limit and want more tax-free returns
- Retirement Focus: If building a large retirement corpus is your priority
- Stable Employment: If you plan to stay with EPFO-covered employers long-term
Frequently Asked Questions (FAQs)
What is the VPF interest rate for 2025-26?
VPF earns the same interest rate as EPF, which is 8.25% per annum for FY 2025-26. Both EPF and VPF rates are declared by EPFO and approved by the government.
Can I change my VPF contribution percentage?
Yes, you can increase or decrease your VPF contribution percentage by submitting a request to your employer. Changes typically take effect from the next payroll cycle. However, you cannot reduce it to zero mid-year.
What happens to VPF when I change jobs?
VPF balance is part of your EPF account and can be transferred to your new employer using UAN. If your new employer doesn't support VPF or you join a non-EPFO organization, you can either withdraw (if eligible) or keep the account dormant earning interest.
Can self-employed people invest in VPF?
No, VPF is only available to salaried employees whose organizations are registered with EPFO. Self-employed individuals should consider PPF, NPS, or other investment options.
Is there a separate UAN for VPF?
No, VPF contributions are credited to your existing EPF account under the same Universal Account Number (UAN). There's no separate account for VPF.
Can I withdraw VPF for emergencies?
VPF withdrawal rules are the same as EPF. Partial withdrawal is allowed for medical emergencies, home purchase, marriage, education, etc., subject to service conditions. Full withdrawal requires unemployment for 2 months or retirement.