Close

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Invest

Insurance and Investment in one plan.

Kotak e-Term

Protect your family's financial future.

Kotak Guaranteed Fortune Builder

A plan that offers guaranteed income for your future goals.

Kotak T.U.L.I.P

A plan that works like a term plan, and Earns like ULIP Plan.

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family.

Kotak Assured Pension

A plan that offers immediate or deferred stream of income

Kotak Lifetime Income Plan

Retirement years are the golden years of life.

Kotak Guaranteed Savings Plan

A plan that offers long term savings and life cover.

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

What is Voluntary PF Contribution?

Voluntary Provident Fund (VPF) contribution allows employees to voluntarily contribute up to 100% of their basic salary and Dearness Allowance (DA) beyond the mandatory 12%.

  • 3,345 Views | Updated on: Mar 12, 2024

In the field of financial planning and retirement savings, employees often seek ways beyond mandatory contributions to expand their retirement corpus.

One avenue that provides an opportunity for individuals to boost their Provident Fund savings is voluntary contributions, known as Voluntary Provident Fund (VPF) contributions.

What is the Voluntary Provident Fund?

The Voluntary Provident Fund (VPF), also known as the Voluntary Retirement Fund, refers to the additional contribution made by an employee to their Provident Fund (PF) account, going beyond the mandatory 12% contribution towards the Employee Provident Fund (EPF). This voluntary contribution can range up to 100% of the Basic Salary and Dearness Allowance, earning interest at the same rate as the EPF.

Employers are not obligated to contribute to their employees’ VPF, and employees are not compelled to participate. Once an individual opts for VPF, the contribution cannot be terminated or discontinued before completing the minimum tenure of 5 years.

What are the Advantages of a Voluntary Provident Fund?

VPF is an extension of EPF and is exclusively available to salaried individuals who receive their monthly payments through a designated salary account.

VPF is a valuable financial instrument that provides individuals with a way to support their long-term financial security. As an extension of the Employee Provident Fund (EPF), the VPF offers several benefits that contribute to the overall well-being of employees.

Enhanced Savings Opportunities

One of the primary benefits of VPF is the opportunity for enhanced savings. While the standard EPF mandates a 12% contribution from the employee, VPF allows individuals to voluntarily contribute more, up to 100% of their basic salary and DA. This flexibility empowers employees to tailor their savings to meet their financial goals.

Tax Benefits

Contributions made to VPF are eligible for tax benefits under Section 80C of the Income Tax Act. This provides individuals with a valuable avenue to reduce their taxable income, leading to potential tax savings.

Competitive Interest Rates

VPF offers interest rates that align with those of the EPF. The interest earned on VPF contributions helps grow the corpus over time, providing a means for wealth accumulation and beating inflation.

Long-Term Wealth Creation

VPF becomes a potent tool for long-term wealth creation by facilitating higher contributions and offering competitive interest rates. The accrued corpus can be a financial cushion during retirement or be utilized for significant life events, such as education or housing expenses.

Flexibility in Contribution

The voluntary nature of VPF allows employees to decide the extent of their contributions. This flexibility accommodates varying financial capacities, enabling individuals to adapt their savings strategy based on their current and future financial obligations.

Continuity of Contributions

Once an individual opts for VPF, the commitment is for a minimum period of 5 years. This ensures a disciplined and continuous approach to savings, fostering financial discipline and responsibility.

Portability and Accessibility

VPF accounts remain portable across employers, providing individuals with continuity in their savings journey even when switching jobs. Additionally, the accessibility of funds during emergencies, albeit with certain conditions, adds a layer of financial security.

How to Initiate the Opening of a VPF Account?

To establish a Voluntary Provident Fund (VPF) account, an employee should formally request their employer or HR department in writing. This request should outline the intention to open a VPF account and specify the additional amount to be deducted from the salary for VPF contributions. The employee is required to furnish personal details along with the predetermined monthly contribution from the basic salary towards the VPF account.

A VPF account can be initiated at any point during the financial year. It is crucial to note that discontinuing VPF contributions within the financial year is not permissible. If an employee withdraws the VPF amount within five years of opening the account, the withdrawn amount becomes taxable.

What are the VPF Withdrawal Rules?

The VPF offers provisions for partial withdrawals in the form of loans and complete withdrawals. Withdrawals before the minimum five-year tenure attract taxes on the accumulated maturity amount. The final maturity amount is disbursed upon the employee’s resignation or retirement. In the event of the untimely demise of the account holder, the nominee gains possession of the accumulated funds in the VPF account.

The popularity of VPF lies in its flexibility, allowing withdrawals at any time. The account can be tapped into for unforeseen financial emergencies, covering situations such as medical emergencies, educational expenses, marriage, or the acquisition of property.

How to Check the VPF Balance?

Employees can easily monitor their VPF balance online by following these steps:

  • Visit the official EPFO website.
  • Navigate to the ‘Our Services’ tab and select ‘For Employees.’
  • Choose the ‘Member Passbook’ option under the ‘Services’ heading.
  • Enter the UAN and password, then click ‘Login.’
  • Select the Member ID and click ‘View Passbook’ to access the details of your VPF account in the EPF passbook.

Wrapping Up

Voluntary Provident Fund (VPF) contributions empower employees to take control of their retirement savings by contributing beyond the mandatory limit. With its tax benefits, competitive interest rates, and the potential for higher savings, VPF has become a popular choice for those seeking to fortify their financial future. The voluntary aspect of VPF offers a customized approach, allowing employees to align their savings strategy with their unique financial goals.

Key Takeaways

  • A voluntary Provident Fund (VPF) contribution is an additional and optional contribution made by an employee towards their Provident Fund (PF) account.
  • VPF allows individuals to contribute beyond the prescribed 12%, with the maximum contribution capped at 100% of the basic salary and DA (Dearness Allowance).
  • Contributions made to VPF are eligible for tax benefits under Section 80C of the Income Tax Act, allowing individuals to reduce their taxable income.
  • VPF earns interest at rates equivalent to those of the EPF, ensuring that the contributed amount grows over time, aiding in wealth accumulation.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

Buy Online