Employees Provident Fund (EPF) Alert: Big Development Likely In VPF Limit For Tax-Free Interest In EPFO?

The big news is expected in the employees provident fund (EPF) account as reportedly government is looking to hike the contribution limit coupled with a tax-free interest to voluntary provident fund (VPF) under the Employees' Provident Fund Organisation (EPFO). VPF is an optional savings scheme for salaried individuals, offering low risks and healthy returns.

People aware of the matter told the Economic Times that the Ministry of Labour and Employment is examining the issue and is likely to take it up with the finance ministry during FY26 budget discussions.

Currently, the threshold limit for tax exemption in VPF is of Rs 2.5 lakh under Section 10(12) of the Income Tax Act. Above Rs 2.5 lakh, the interest earned is taxable.

Also, VPF offers a fixed rate of return, which is currently about 8.1% under the EPFO.

Additionally, salaried individuals have the option to contribute up to 100% of their basic salary and dearness allowance in VPF. However, the maximum limit is currently at Rs 2.5 lakh.

According to the sources, the move to hike the threshold limit is to enable lower-middle and middle-income salaried classes to save more through EPFO and encourage them to develop a reasonable retirement basket.

Here are some of the key advantages of VPF as per Kotak Life:

1. Enhanced Savings Opportunities: One of the primary benefits of VPF is the opportunity for enhanced savings. While the standard EPF mandates a 12% contribution from the employee, VPF allows individuals to voluntarily contribute more, up to 100% of their basic salary and DA.

2. Tax Benefits: Contributions made to VPF are eligible for tax benefits under Section 80C of the Income Tax Act. This provides individuals with a valuable avenue to reduce their taxable income, leading to potential tax savings.

3. Competitive Interest Rates: The interest earned on VPF contributions helps grow the corpus over time, providing a means for wealth accumulation and beating inflation.

4. Long-Term Wealth Creation: VPF becomes a potent tool for long-term wealth creation by facilitating higher contributions and offering competitive interest rates. The accrued corpus can be a financial cushion during retirement or be utilized for significant life events, such as education or housing expenses.

5. Portability and Accessibility: VPF accounts remain portable across employers, providing individuals with continuity in their savings journey even when switching jobs. Additionally, the accessibility of funds during emergencies, albeit with certain conditions, adds a layer of financial security.

As per the Department of Economic Affairs, the pre-budget meetings chaired by Secretary (Expenditure) commenced in the second week of October 2024. Financial Advisers were directed to ensure that necessary details required in Appendices I to VII of this Circular are properly entered in UBIS before/ latest by 7th October 2024.

The budget for FY26 will be presented on February 1, 2025.