Voluntary Provident Fund (VPF): Should you subscribe?

Planning

oi-Roshni

By Roshni Agarwal

Published: Tuesday, October 15, 2013, 12:20 [IST]

The regular employee provident fund (EPF) account that serves as a retirement planning tool for people in service can further be supplemented by subscribing to Voluntary Provident Fund account with the company. VPF account is dissimilar to the regular EPF account in the sense that while there is a threshold limit for the amount that can be deducted from the salary amount in case of EPF (12% of basic salary + daily allowance), there is no such limit in case of a VPF account.

This account enables an employee to contribute more towards the retirement corpus by allowing deduction to the extent of 100% from the basic and dearness allowance. But with increase in the employees' contribution towards the provident fund kitty, employer's contribution will not increase in the same proportion instead it will not be beyond the otherwise 12% as in case of EPF account.

How can an employee open a VPF account?

The VPF account can be opened with much ease and simply requires an instruction to the employer in its respect. You as an employee need to specify the amount you want to be deducted as % from the basic salary as VPF on a monthly basis.

How subscription to VPF account is good?

1. Ensures disciplined investment: With regular contribution from your salary account as per your prescribed limit, VPF account ensures regular investments on your part.

2. With no threshold limit for deduction or contribution, VPF allows an individual to contribute as per his requirement. In comparison several other retirement tools for instance PPF account have a cap on investment amount of Rs. 1 lakh in one calendar year.

3. Interest income is non-taxable : The contribution in VPF that generates the interest income at par with the EPF account is non-taxable. Further, the interest income earned is credited to the EPF account as no separate VPF account exists and infact it is lined to the EPF account of the concerned employee. So, the interest earned on VPF investments is tax-free.

So, besides catering to your regular investment requirement, the VPF account may provide you with a surplus amount for your retirement needs provided you have sufficient liquidity and can contribute an additional amount towards the account. It should be remembered that investment towards this account provides returns that fails to offset inflation rate so an individual ought to invest in other financial instruments that are deemed to beat inflation such as equity, gold etc.

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