VPF – Why Pvt Employees should not forget?
VPF means the Voluntary Provident Fund. This is an optional saving for Pvt Employees.
Employees usually save money in EPF ( Employee Provident Fund).
In addition, Employees can contribute over and above the fixed limit of 12% in this Provident Fund.
The government of India will fix the rate of interest in this Fund.
Moreover, in this fund one can contribute up to 100% of ( Basic + D. A).
In addition, This P.F is a risk-free and tax-free investment option for Pvt Employees.
Moreover, the Employer will not contribute to this Fund.
In addition, an Employee can easily transfer his Voluntary Provident fund from one Employer to another.
Who is Eligible for VPF?
Salaried Individuals in Private Sector are eligible for this fund who are receiving the salary on a monthly basis.
In addition, It is very easy to apply for this additional P.F. The employee has to request an employer or should contact the concerned person in the company to
contribute to VPF.
Some Employers may provide you VPF form which contains details like the amount you would like to contribute, etc.
In addition, The PF amount will be directly debited from the salary similar to EPF.
What are the rules and regulations of the Voluntary Provident Fund ?…
- This fund is on a voluntary basis only.
- You can get tax benefits Up to 1.5 lakh for the contribution made towards this fund.
- The interest rate in this VPF will be decided by the Government of India every financial year. This interest may increase or decrease compared to the previous financial year.
- Employees who are not part of EPF and who are working un-organized sector also not eligible for this fund.
- An Employee can opt for this fund any time during the financial year.
- Partial withdrawals are possible in the form of loans from this VPF. But, if the withdrawal is made before maturity, then that withdrawal is taxable in the hands of Employee.
What are the Benefits of VPF?…
It has an easy application process…
You can easily opt for this VPF by simply contacting your Employer.
Safe Investment Option…
This fund is managed by the Government of India. Hence, It is a safe investment option.
VPF has an EEE benefit. i.e while contribution tax benefits under 80 C, interest earned is tax-free and also the maturity amount is completely tax-free.
Withdrawals under Voluntary Provident Fund allowed…
You can withdraw EPF for emergency health issues, higher education, and for buying a house or land, etc.
* Marriage of self, Children or brother you can withdraw this fund.
- Home improvement purposes also you can withdraw.
- For buying land also you can withdraw this fund.
- For medical treatment of Self or Family. A doctor certificate is a must to withdraw.
- Repayment of Home Loan and Home must be in the name of the VPF holder.
Find different benefits of EPF, VPF, and PPf in below image…
But recently in Budget 2020, new income regime introduced.
You can choose any one tax regime old or new.
In the new income tax regime, 80 C benefits are not available.
Hence, in the new income tax regime, the EPF tax benefits are now Taxable- Exempted-Exempted.
While in the old income tax regime it is Exempted-Exempted-Exempted.
In addition, T means taxable and E means Exempted.
How to use Voluntary Provident Fund for yourself?…
VPF is really a nice product that is completely safeguarded by the Government of India with and completely tax-free maturity.
In addition, it has to be used wisely because the interest rate in this fund is around 1% or 2% more than the inflation only at present.
Moreover, to get a more tax-adjusted real return, you have to invest in equity.
But how much to invest in Equity, P.F ( VPF + EPF) must be decided after knowing your risk tolerance and financial situation.
One disadvantage with EPF/VPF is that you can not do two re-Balancing with equity and PF. As there is limited liquidity in EPF/VPF.
Pvt Employees can do one-way re-Balancing i.e you can book profits from equity and invest this fund. But you can not liquidate profits from this fund and invest equity easily.
Finally, Private Employees should invest wisely with a combination of equity mutual funds (equity) and EPF/VPF in an appropriate ratio for your retirement.
Private Employees have to invest less in EPF/VPF when you are young and have to invest more when you are slowly reaching your retirement.
Here, If you are confused about managing your finances well, then hiring a Sebi Registered Investment Adviser is the wisest thing.
I have gathered information about VPF from websites like Bankbazaar.