VPF - Voluntary Provident Fund

VPF or the Voluntary Provident Fund is an investment and retirement planning scheme backed by the Government of India which provides an opportunity for the employees to voluntarily contribute a percentage of their salary towards their respective Employee Provident Fund (EPF). The employee concerned can contribute up to 100% of their salary and the organisation or company is responsible to contribute 12% of their basic salary to their EPF. The contributions from the employees are monthly and can also avail the option to make additional deposits to their respective Provident Funds.

The scheme provides a safe alternative to the employees who wish to invest more than the compulsory percentage of their salary to expand their retirement funds. It is to be noted that the lock-in period for the amount deposited is five years. If the employee wishes to withdraw the accumulated amount before the maturity period, the contributions will not be eligible for tax exemptions. The funds are transferred to the appointed nominee in case the employee meets an untimely demise. 

Features of Voluntary Provident Fund - VPF

It is important to be aware of the following features before opting to invest in the VPF scheme:


It is mandatory for the organisations to provide EPFs if their strength is more than twenty. To avail VPF scheme it is of utmost importance that the establishment the individual is working in is recognised by the Employee Provident Fund Organisation. However, companies with less than 20 employees can also open EPF accounts for their employees. But in such cases, the onus is on the organisation not the individual employee. The employee can only apply for the VPF scheme if only the organisation decides to open EPF accounts for its employees.


The application process to apply for VPF is fairly straightforward. To initiate the process the employee is required to connect with the HR department of the organisation appealing to them to expand the Provident Fund allotment from their total salary. The employee would also be required to fill out and submit a VPF form to the concerned department where information regarding the desired amount that shall be allotted to the EPF from the basic salary shall be clearly mentioned.

Cap on VPF Contributions

The VPF offers flexibility to its investors as they can contribute any desired amount from the total salary to the scheme. The employee can allot any percentage to the scheme ranging from 12% which is the minimum and up to 100%. In the VPF scheme, the salaried employee has total jurisdiction over the monthly contribution they would want to make to their EPF account. But it is advised the employee decide upon a consistent figure for at least one financial year for the benefit of the employer.

Section 80C 

The VPF scheme is covered under section 80C of the Income Tax Act which makes the contributions eligible for tax exemptions. However, the tax deductions are applicable only to investments up to Rs 1,50,000.

Benefits of VPF

The employees who wish to pursue this scheme would be eligible to avail of multiple benefits such as high-interest rates, hassle-free application processes and simple transferability. The VPF reduces the headache of salaried individuals who wish to invest their salary in a safe and secure scheme.

Tax Exemptions

The VPF features under the EEE category which means the investment will receive tax exemption on:

  • Contributions
  • Principle
  • Interest 

If the partial or total amount is withdrawn after the maturity period the amount accumulated would also be eligible for tax exemptions. 

Application Procedure 

The application procedure to register the account is simple. The concerned employee does not have to indulge in any complicated process. The employee can simply connect with the HR department of their respective company and start the process by filling out and submitting the application form. The process does not take any time as the EPF and VPF accounts are not exclusive. The process is in place so that the employee can avail of the option to make VPF contributions. 


This investment scheme provides a secure option to the investors to partake in a government-backed scheme. It saves the employee from the headache to explore and choose from the various investment options which are not as steady and are much more prone to volatility due to unforeseen factors. Guarantee of the accumulated contributions and interest from a sovereign state makes it a viable option for investors who wants to frame a low-risk, high-returns portfolio. 


The VPF scheme offers a competitive interest rate for its investors. For the year 2021-22, the government determined the annual rate of interest at 8.1% on EPF. Among all the fixed investment options, the VPF offers the highest interest rate which is also exempted from taxes.


The process of transferring the VPF account while switching jobs is not a tedious one. The government of India launched the Universal Account Number (UAN) which ensures easy portability and transparency of the provident fund for its depositors.

Retirement Planning 

The VPF provides flexibility to the investor to plan for their retirement. The contributions made to the EPF are to the choosing of the account holder which provides a  lot of scope to the employee to frame their retirement plan. The scheme offers a safe and sound cocoon for the long-term investors to deposit their lifelong savings. 

Eligibility Criteria for VPF 

  • The individual shall be a salaried employee in the organized sector.
  •  The eligibility of an employee to apply for VPF depends on whether the organization maintains EPF accounts for its employees.
  • It is mandatory for organisations with more than twenty employees to maintain EPF accounts to adhere to the regulations set by the government. 
  • In case a company employ less than twenty employees, the decision to set up EPF accounts for its employees relies on the employer. An employee cannot apply for a VPF account, which is an extension of the VPF account on their own accord.
  • Individuals employed in the unorganized sector cannot apply for VPF accounts.
  • Salaried employees who receive their remuneration on monthly basis are eligible to apply to the scheme 

Documents Required for VPF

The employee interested in making contributions to the VPF accounts shall maintain the below-mentioned documents to ensure a hassle-free application process.

  • Registration Certificate of the Organization the applicant is employed in which is approved by the Ministry of Finance. 
  • Form 44
  • Form 29 
  • Articles of Association and Memorandum shall be submitted by the SDN and BHD organisations. 
  • Registration Certificate of the company 
  • Intricate and detailed profile of the company. 

The applicant is required to reach out to HR or the concerned department of the company requesting a change in the EPF contributions. The process is simple as the VPF contributions are made in the existing EPF account of the employee. 

VPF Interest Rates

The interest rate for the VRF scheme is determined by the central government at the commencement of every financial year.

Financial Year Interest Rate
2021-22 8.10%
2020-21 8.50%
2019-20 8.50%
2018-19 8.65%
2017-18 8.55%
2016-17 8.80%
2015-16 8.80%
2014-15 8.75%
2013-14 8.75%
2012-13 8.50%

It is to be noted that the interest rate cycle has been reversed after the wait of two long years during which the interest rate was minimized to the record-breaking levels. However, it is set to change due to the rise in global inflation. To curtail it, the government would be inclined to increase the interest rate. The rate of interest on these schemes is set to increase in the financial year 2022-23, as the economists are yet to notice signs that point towards the decline in inflation levels worldwide.

How the VPF Interest Rate is Determined?

The interest rate for the VPF scheme for the financial year is reviewed by the Employee Provident Fund organisation (EPFO).

  • The central governing body of the EPFO is the Board of Trustees who determine the interest in accordance with the Ministry of Finance.
  • The revenue generated from the investment made in the EPFO is reviewed by the Board of Trustees. The current rate of interest in the scheme determines the interest rate for the upcoming financial year.
  • The interest amount which is to be credited in the EPF accounts of the depositors is  authorized by the central government.
  • The interest credited in the account is with respect to the monthly balance of the investor.
  • The investor would receive the interest on the credit amount towards the end of the preceding year.
  • The withdrawn sum during the financial year is deducted from the while computing interest accrued.
  • In case a refund is claimed by the investor, the interest payable shall be only up to the end of the month prior to the date on which it was authorised.

How the VPF Interest Rate is Calculated?

Some of the monthly interest income would add up to the total VPF interest accrued in a financial year. 

To calculate the monthly interest income, the investor is required to divide the annual interest rate by 1200 and multiply the result with their opening balance. It is to be noted that the opening balance is nil for the first month. 

For better understanding, let us dive into an example. 


Suppose, you’re employed at the ABC company on a salary of Rs 30,000 per month. The mandated contribution you’ll have to make towards your EPF account is 12% of your salary. But you decide to make an additional contribution of 8% towards your VPF. A contribution of 3.67% of the basic salary i.e. Rs 15,000 would be borne by the employer.

Please note the interest rate in the following example is taken as 8.5% p.a. 

Month Opening Credit Balance  Interest 
April  Nil
May  6,500  46 
June  13,100 93
July  19,650 139
August  26,200 186 
September  32,750 232
October  39,300 278
November  45,850 325
December 52,400 371
January 58,950 418
February  65,500 464
March  65,500 510
Total Interest Accrued  3062

 You’ll earn a total of Rs 3,062 in interest from your EPF account. Assuming the salary remains consistent throughout the year. You’ll receive the interest amount owing to the additional contributions made towards your EPF account throughout the year. 

Tax Benefits available under VPF

The VPF features under the Exempt-Exempt-Exempt or EEE category which ensures that the contributions made by the investor would be exempted from tax. The interest received on the VPF contribution would be tax-free. The VPF contributions of the eligible employee would reap annual tax deductions up to 1.5 lakhs under section 80C of the Income Tax Act. It is to be noted that if the government sets the interest rate over 9.5%, the interest earned would be eligible for tax. In case the concerned investor succeeds in contributing to their respective EPF without making any withdrawal until its maturity period i.e. five years, no wealth tax would be levied on the accumulated amount and interest. 

Voluntary Provident Fund Rules and Regulations

  • Only salaried employees who are employed in organisations which are recognized by the Employee Provident Fund Organization (EPFO) are eligible to apply under the VPF scheme.
  • The VPF is not an exclusive account. The additional contributions made under the VPF scheme are directly deposited into the EPF account of the employee.
  • The basic necessity to apply for the VPF scheme is to hold an EPF account.
  • As the name suggests, it is not a compulsion to opt for the VPF scheme, unlike the EPF.
  • The rate of interest on the VPF is determined and regulated by the government of India at the beginning of the financial year. The rate of interest remains consistent throughout the year. But it varies on a yearly basis. 
  • The contributions made in the fund can be withdrawn at the time of maturity. The amount accrued will be exempted from tax.
  • The EPF account provides efficient portability and transferability due to easy access to the UAN account.
  • The designated nominee will receive the accumulated amount in case of an untimely demise of the account holder.
  • The interested individual who holds an EPF account can apply under the VPF scheme at any time of the financial year.
  • The individual who has applied under the VPF scheme cannot discontinue their investment before the maturity period which is five years.
  • The accumulated amount can be subject to taxes, in case the Direct Tax Code is solicited by the central government. 

Important VPF Withdrawal Rules

If the employee wishes to withdraw the accumulated amount before the lock-in period that is five years, a provision for withdrawal is set in place. However, the amount withdrawn from the provident fund will not be exempted from taxes. The concerned individual has to bear the wealth tax levied on the amount withdrawn.

The provident fund holder is eligible for withdrawal for the following reasons:

  • Loan repayments on Real Estate acquired by the account holder
  • Medical Treatment of the concerned individual or their family members
  •  Wedding nuptials expenses
  • Expenses for construction and renovation on properties owned by the depositor

Who wishes to withdraw the amount is required to fill and submit a Form 31 to their respective employer. Documents such as the address of the depositor, EPF number, and bank account details shall be attested with the form. Once the request is approved, the accumulated amount from their respective EPF would be relocated to the bank account of the depositor.

Frequently Asked Questions (FAQs)

Who is eligible for VPF?

Salaried employees operating in the organised sector where their respective company maintains EPF accounts for its employees are eligible to apply for the VPF scheme.

Are VPF investments good?

The VPF investment is regarded as one of the safest long-term investing options among investors due to the attractive interest rate and tax exemptions offered by the government.

Can VPF be withdrawn?

There is a procedure for account holders to withdraw the accumulated amount up to that point before the lock-in period. However, it is to be noted that the amount withdrawn would not be exempted from taxes.

Is VPF taxable?

The VPF features under the EEE category which means it enjoys exemption on tax on every facet of the investment be it the principal, contributions or the interest accrued. The tax would be levied on the contributions only if the amount is withdrawn before the maturity period which is five years.

What is the lock-in period for VPF?

The lock-in period on the VPF is five years. The account holder/depositor cannot withdraw or discontinue their investment towards their EPF until the maturity period.

Can VPF be changed every month?

The VPF scheme provides the flexibility to its account holders to make changes to their monthly contributions. But it is to be noted that the organisation may have separate policies regarding the contributions. It is advisable for the employee to communicate with the concerned department of their respective organization for a clearer understanding of the variability offered on their monthly contributions.

How much should I invest in VPF?

For the EPF account, 12% of the salary is mandatorily deducted. In the VPF scheme, the onus is on the account holder to allot additional contributions. The depositor can allow up to 100% of their salary to their EPF account under the VPF scheme.

Does the employer contribute to VPF?

Unlike the EPF, the employers are not liable to pay or match the percentage of additional contributions if the employee opts for the VPF scheme.

What is the maximum and minimum amount that can be invested in VPF?

There is no maximum cap on your VPF contributions. The employee can allot up to 100% of their monthly to their EPF account. The minimum amount the employe shall contribute to their EPF is 12% of their monthly salary.

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