If you are making a contribution to the Employees Provident Fund (EPF) that is just the mandatory amount, you are probably making a mistake. You should increase your EPF amount, which is currently 12 per cent of your basic salary.
You can increase the amount through the Voluntary Provident Fund contribution.
What is the VPF or Voluntary Provident Fund?
The VPF is the process by which you can increase your EPF amount contribution, which is currently at only 12 per cent of the basic salary. So, if you want to contribute even up to 100 per cent of your basic salary, you can do it through the Voluntary Provident Fund, which is just an extension of the EPF, as the advantages of the EPF are found in the VPF.
Here are 4 reasons you should increase your provident fund contribution
High interest rates that are more than banks
The interest rates on the EPF was 8.50 per cent for FY 2019-20. Compare this with banks and you realize that it is a good 3 per cent over and above what banks in India are currently offering. It's important to remember that the Voluntary Provident Fund is just an extension of the Employees Provident Fund.
So, if you switch jobs you can transfer the same easily. Any employee, who is on the payroll of a company can apply for the EPF. High interest rate is one of the biggest draws for contribution to the employees provident fund. The EPFO changes the interest rate every year.
Tax benefits under Sec80C of IT Act for EPF and VPF
Contribution to the EPF through the VPF entitles one to a tax benefit under Sec80C of the Income Tax Act. So, if you make a contribution to the tune of Rs 1.5 lakhs, the same could be offered for tax benefit under Sec80C of the IT Act.
Another important thing to note is that since the Voluntary Provident Fund is linked to the Aadhar card, the transfer from one job to the other is seamless.
Go for the VPF if you have the spare money from your monthly salary.
Interest income from VPF is tax free
The interest income from the VPF is tax free in the hands of the subscriber provided that the sum is withdrawn after 5 years of first contribution. So, if you have begun your contribution on Jan 1, 2020, than the interest earned becomes tax free from Jan 1, 2025.
So, in short one must complete 5 years, since the first contribution.
The EPF and VPF are extremely safe
The Employees Provident Fund and the Voluntary Provident Fund are extremely safe, since they have the backing of the central government. This is why some individuals tend to keep the money in the EPF even after they leave a job and have not completed 58 years of age.
However, if you leave your job and retire early and are unemployed, you can still keep the money in the EPF, however, the interest will be taxable. So, you need to remember the same.
Voluntary Provident Fund is the best, safe and ideal way to invest. This is because at the moment it is very difficult to get high interest rates and that too which is not taxable. It's also very safe as they are backed by the Government of India.