What is VPF?
VPF (Voluntary Provident Fund) is called PF contribution by the employee to the EPF above 12 percent. In VPF, the employee can contribute up to 100% of his basic salary if he wants. But remember that the contribution from the employer cannot increase, it is limited to 12 per cent. The facility of VPF is only for the salaried employees.
How is investment done?
To take advantage of VPF, the employee has to contact the HR of his company and tell that he wants to increase his contribution to the PF. If the company provides the facility of VPF, then the HR department will take steps according to the policy of the company. There is no need to create a separate account for VPF investments. After the completion of all the processes, the contribution of the employee to the VPF will start. Usually this process takes place at the beginning of the financial year. If the employee wants, the contribution in VPF can be revised every year.
tax benefit details
VPF account also gets the same interest as EPF. Investment in VPF gets the benefit of tax deduction under section 80C of the Income Tax Act. That is, deduction up to Rs 1.50 lakh can be claimed in a financial year. The maturity amount from EPF and VPF and withdrawal made after completion of 5 years of service is not tax deductible. However, the rules regarding tax on interest have changed now.
What is the game of tax on interest
In Budget 2021, Finance Minister Nirmala Sitharaman proposed that tax exemption be limited to Rs 2.5 lakh per annum contribution in case of interest income on employee contribution to various PFs. That is, only the interest received on annual contribution up to 2.5 lakh rupees in one’s EPF and VPF account should be tax free. Interest earned on contributions above this limit is taxable. This threshold limit of Rs 2.5 lakh is for non-government employees. For government employees, interest earned on annual contribution up to Rs 5 lakh in EPF and VPF account is tax free.
This rule has come into effect from 1st April 2021 and is valid for PF contributions made on or after 1st April 2021. CBDT notified this in August 2021. This new rule will directly affect those employees, who have high income and they get huge tax free interest income through Voluntary Provident Fund. Contributions made in EPF and VPF accounts till March 31, 2021 will not be affected by this.
Other Features of VPF
- VPF account information can also be accessed on the EPFO website.
- Withdrawal of money can be claimed online.
- Like EPF, VPF account also has a lock-in period, whichever is earlier, when the employee retires or resigns.
- For partial withdrawal of money from VPF account, it is necessary for the account holder to work for five years, otherwise tax is deducted.
- The entire amount of VPF can be withdrawn only on retirement.
- VPF funds can also be transferred like EPF on change of job.
Now you will not be able to see EPF passbook without e-nomination
Now you will not be able to see EPF passbook without e-nomination
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