As a salaried employee, you regularly contribute to your EPF (employees’ provident fund). The EPF is deducted from your salary each month. According to current EPF law, you must pay 12% of your income to your EPF account automatically, and your employer must match this amount (including the EPS share).
Even though your employer’s contribution is limited to 12%, you have the option to contribute more than the required 12% through the Voluntary Provident Fund (VPF). Before you make a decision, let us define VPF and determine whether it is useful.
What is a Voluntary Provident Fund (VPF)?
The Voluntary Provident Fund (VPF), also known as the Voluntary Retirement Fund, is the employee’s voluntary contribution to his provident fund account. This payment is in addition to the 12% contribution that employees are required to make to their EPF. It is permissible to contribute up to 100% of his Basic Salary and Dearness Allowance.
The EPF is a continuation of the VPF. Only salaried persons who receive their monthly paychecks through a designated salary account are eligible for the VPF option.
Is it useful or not?
- VPF is a fantastic tax-saving alternative since it fits under the EEE category (exempt on contribution, exempt from principle, and exempt on interest).
- It assists the worker in accumulating a big savings portfolio and through major life milestones.
- VPF as compared to long-term investments is considered a risk-free investment.
- VPF money can be withdrawn at any point in time.
- Since your VPF account is linked to your Aadhar Card. As a result, transferring your VPF account from one employer to another is very simple.
When should you start contributing to your VPF?
If your monthly EPF contribution is less than Rs 2.5 lakh, start a VPF for a sum sufficient to raise your overall (EPF+VPF) payments to Rs 2.5 lakh. Assume you contribute Rs 12,500 per month or Rs 1.5 lakh per year to your EPF. As a result, you can contribute Rs. 8,333 per month or Rs. 1 lakh per year to the VPF. Because you stay within the ceiling, the full donation yields an 8.1% tax-free return of Rs 2.5 lakh.
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