Voluntary Provident Fund: Enhance Your Retirement Corpus With Tax Benefit

One of the most significant financial goals in a person's life is retirement planning. Most of us have heard about Employee Provident Fund (EPF) and (Public Provident Fund) PPF for retirement corpus development. You can add Voluntary Provident Fund (VPF) to your EPF to boost your retirement corpus.

Voluntary Provident Fund

An employee must contribute 12% of his basic income to his provident fund account under EPF. His employer contributes an equal amount. Aside from donating the standard 12% of employer basic salary, the employee may opt to contribute more, up to 100% of his basic and D.A., voluntarily. The contribution is known as a Voluntary Provident Fund contribution, and it earns the same rate as a regular EPF payment. In simple words, VPF is an extension of EPF. Putting It simply, VPF contributions are those paid by workers in excess of the minimum contribution specified by the Employees' Provident Fund Organisation (EPFO). However, keep in mind that your company will not be obliged to 'volunteer' to contribute more than the mandatory 12%. Whatever amount is provided by the employee in excess of the minimum requirement is referred to as the Voluntary Provident Fund, and there is no limit to the amount that can be donated to the VPF.

How to Start VPF?

Investing in a Voluntary Provident Fund is a simple and straightforward process that needs you to notify your employer that a particular proportion of your income (subject to the above-mentioned maximum) will be deducted from your pay each month. You can get in touch with the company's Finance/Payroll/HR department. In most cases, there is a pre-specified form with the relevant department that you must fill out, sign, and send to the department. It mostly inquires as to how much Basic and DA you wish to deposit to your VPF account.

VPF Tax Treatment

Voluntary Provident Funds are taxed in the same way as Employee Provident Funds are. Contributions to the VPF are tax-deductible under Section 80C of the Income Tax Act of 1961. It is one of the 80C instruments in which you may invest to save up to Rs. 1.5 lakh in taxes. It is subject to EEE (Exempt, Exempt, Exempt) taxes. This implies that the investment in a VPF is tax-free during its entire life cycle, including investment, earnings, and withdrawal. However, if a withdrawal is made before five years of continuous service, the money is taxed.