Voluntary Provident Fund (VPF)

How Does VPF Work?

Employees can choose to contribute up to 100 percent of their basic salary and dearness allowance into their VPF account. These contributions earn interest at the same rate as EPF, which is 8.25 percent for the financial year 2024–25. The scheme is managed by the Employees' Provident Fund Organisation (EPFO) and backed by the Government of India.

For example, if your monthly basic salary plus dearness allowance is ₹50,000, you can choose to contribute any amount up to ₹50,000 each month into your VPF. If your total annual contribution stays within ₹2.5 lakhs, the interest earned remains tax-free.

Key Features of VPF

• Interest Rate: 8.25 percent per annum for FY 2024–25

• Contribution Limit: Up to 100 percent of your basic salary and dearness allowance

• Employer Contribution: Not applicable; this is purely voluntary and employee-driven

• Tax Treatment: Falls under the EEE category (Exempt at contribution, growth, and withdrawal) if annual contribution is within ₹2.5 lakhs. Interest on contributions beyond this limit is taxable

Benefits of VPF

• High and Stable Returns: Earns more than most fixed-income instruments with similar safety

• Tax Savings: Contributions qualify for deduction under Section 80C, and interest is tax-free up to the limit

• Safe and Government-Backed: Managed by the EPFO, offering security of capital and assured interest

• Easy to Manage: Deductions are made directly from salary, so it is hassle-free

Challenges to Consider

• No Employer Contribution: Unlike EPF, VPF does not include a matching amount from your employer

• Tax on Excess Contribution: If your yearly VPF contribution crosses ₹2.5 lakhs, the interest on the excess amount becomes taxable

• Limited Liquidity: Withdrawals are subject to EPF rules, and early withdrawal may be restricted

Conclusion

The Voluntary Provident Fund is a smart choice for disciplined investors looking to boost their retirement savings. In 2025, with stable interest rates and tax advantages, VPF remains one of the safest and most efficient options for long-term wealth building. If you have surplus income and a long-term outlook, VPF deserves a place in your financial plan.