Why you should opt for VPF even after the recent tax on EPF?

What is VPF?

VPF, or Voluntary Provident Fund, is the voluntary retirement fund to which employees can voluntarily contribute additional funds towards their provident fund account. VPF contributions are in addition to the 12% of an employee’s salary already contributed towards their EPF or Employees’ Provident Fund. The maximum amount an employee can contribute to the VPF is equal to their basic salary plus their dearness allowance, and the interest rate earned on VPF contributions is the same as that of the EPF. For the Financial Year 2021-22, the interest rate for EPF is 8.10%.

Why are the benefits of opting for Voluntary Provident Fund?

VPF is an excellent choice for anyone looking for a debt instrument with a high-interest rate. VPF is an EEE instrument. EEE stands for Exempt-Exempt-Exempt, a term used in finance, specifically when referencing taxes. Every investment has three stages: the investing stage, the income stage, and the withdrawal stage. EEE specifically refers to a tax regime wherein certain investment instruments allow all three components to be exempted from taxation. In other words, EEE indicates that these investments are eligible for deduction under section 80C when the investment is made. In addition, the interest earned on the said investment and any withdrawals made at the end of the investment are also exempt from taxation. Over a longer investment period, the accrued tax benefits can be significant.

But EPF and VPF contributions above 2.5 lakhs are being taxed. Should I still opt for it?

Given the great benefits of VPF, you should consider opting for it, but make sure that your total contribution in the year does not exceed 2.5 lakhs. If the employee’s own EPF and VPF contribution exceed the specified limit of Rs 2.5 lakh or Rs 5 lakh, as the case may be, the interest earned on the excess contribution becomes taxable. If you are in the 30% tax bracket, any interest on your contribution to your PF and/or VPF fund exceeding 2.5 lakhs will be subject to a 30% tax.

How to find out how much VPF to opt for? 

Every month your employer deducts your EPF contribution from the salary paid. The EPF contribution reflected in your salary slip must be multiplied by 12.

Let us say your basic salary and dearness allowance is Rs 60,000 per month. Your employer will calculate your EPF contribution at 12% of your basic salary. Your monthly contribution to the EPF account comes out to be Rs 7200. Multiplying this monthly EPF account contribution by 12 (Rs 7,200X12) will give you 86,400, which is your annual contribution to EPF. You can still contribute a yearly VPF amount of Rs 1,63,600 or around Rs. 13,600 a month so that your yearly EPF and VPF contribution is less than the mandated limit of Rs 2.5 lakh. So, the interest you earn on the money you put in each year will continue to be tax-free.

Use the VPF calculator below to see how much you can invest in VPF without having to pay taxes.

What are the disadvantages?

While the VPF offers many benefits, there are also some drawbacks. For example, you will not be able to access your provident fund balance until you retire or leave your job. If you need to access your funds for an emergency, this can be a problem. Additionally, the government sets the interest rate on your provident fund balance and is subject to change. This means that you could end up with a lower interest rate than you would like if the government decides to decrease the rate.


The VPF is a great way to save for retirement, but it is important to understand the pros and cons before making a decision. If you are looking for a tax-efficient way to save, the VPF is a good option.

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