You regularly contribute to your EPF (employees’ provident fund) as a salaried employee. Each month, this is subtracted from your pay. According to current EPF regulations, you must automatically contribute 12 per cent of your salary to the EPF account, and your employer must match this amount (including the EPS portion).
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While the employer’s contribution is limited to a maximum of 12%, as an employee, you have the option to contribute more than the minimum 12% through the Voluntary Provident Fund (VPF). Before you make a decision let us tell you what is VPF and if it’s worth it or not.
What is Voluntary Provident Fund (VPF)?
The employee’s voluntary contribution to his provident fund account is known as the Voluntary Provident Fund (VPF), sometimes known as the Voluntary Retirement Fund. This contribution goes above and beyond the 12% that an employee is required to contribute to their EPF. Up to 100% of his Basic Salary and Dearness Allowance may be contributed in total.
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The EPF is a continuation of the VPF. Only salaried people who receive their monthly payments through a certain salary account have access to the VPF option.
Is it beneficial or not?
- The VPF is a fantastic tax-saving alternative because it falls under the EEE category (EEE – exempt on contribution, exempt from the principal, exempt on interest).
- It aids the worker in building a sizable savings portfolio and supports them through significant life milestones.
- It is considered a risk-free investment compared to long-term investments.
- VPF can be withdrawn at any given time.
- Your Aadhar Card is connected to your VPF account. Therefore, moving your account from one employer to another is fairly simple.
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When you should begin VPF contribution?
Start a VPF for a sum sufficient to bring your total (EPF+VPF) contributions to Rs 2.5 lakh if your yearly EPF contribution is less than Rs 2.5 lakh. Let’s imagine that you contribute Rs 12,500 per month or Rs 1.5 lakh annually to the EPF. Therefore, you are free to contribute Rs. 8,333 per month or Rs. 1 lakh annually to the VPF. Since you remain below the cap, the entire contribution generates an 8.1 per cent tax-free return of Rs 2.5 lakh.
