Are VPF Tax Free?
Updated On Aug 25, 2022
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The most advantageous tax savings plan is the Voluntary Provident Fund (VPF), yet it is also the most underutilised. Only salaried individuals who are currently EPF members are eligible for this option. Employees are expected to contribute a minimum of 12% of their base pay. While the employer's contribution is only allowed to be as little as necessary, the employee's contribution is not limited in any way.
You can invest in the Voluntary Provident Fund as a safe and secure way to save a little bit more than usual for your elderly years. You will receive all the benefits of EPF with this additional payment as well, with the exception that there will be no employer contribution, as there is with EPF. To know more about VPF being tax-free, read on.
How Can An Individual Invest In A VPF?
To invest in VPFs, no separate account has to be kept open. Your EPF account receives the VPF contributions you have made. All you have to do is let your employer know that you're prepared to contribute more to the EPF. The surplus amount you are prepared to invest as VPF will be deducted by the HR or payroll departments. Transferability of these accounts is available to all qualifying employers.
Is VPF A Good Investment Option?
If you are even slightly risk averse and prefer assured profits rather than managing your financial portfolios, a VPF is an ideal alternative for saving. Making a deposit in the VPF has the distinct benefit that no additional assets are generated. Instead, they are just added to the EPF, eliminating the need for further monitoring. The process of investing in VPFs is comparably simpler since all you need to do is inform the office's accounts department to monthly remove a specified amount from your gross income for VPF. As a result, the VPF operates somewhat similarly to a typical monthly investment plan without the inconvenience of filling out paperwork or hopping from desk to desk.
Does VPF Have A Better Investment Return?
Typically, when employees receive an annual wage increase, they look to expand their investing alternatives. Additionally, employees can invest in VPF if they don't want to spend additional time looking for better investment options. Apart from these purely coincidental factors, VPF is preferable to standard PF since it offers a higher interest rate. VPF and PF have an interest rate of 8.50%.
This is a profitable investment choice as no other FD, retirement fund, or deposit option will provide you with this variety of interest rates annually. In addition, this investment is guaranteed, which means that when you retire, you will get a certain sum of money with no risk associated with it. Sometimes workers believe they may make excellent returns quickly if they invest in equity markets, such as mutual funds, SIPs, or business stocks. However, you must keep in mind that the market will determine whether you make a profit or a loss. contrary to VPF, a secure and safe alternative.
Tax Savings Under VPF
You would be able to deduct your VPF contributions made to the EPF accounts. Section 80C of the Income Tax Act, 1951 provides for this deduction. The annual limit for tax deductions for workers is now Rs. 150,000. Since VPF is a guaranteed, tax-free investment option, you can pick it starting with the next fiscal year if your salary is increased or you get more money. A lock-in period will apply to your VPF investment, just as it does to your EPF investment. After retiring or after being jobless for more than two months, anyone will be entitled to withdraw cash from your VPF. Enjoy this tax-free investing choice while you can. You can relocate the VPF, much like your EPF, when you change jobs or move to a new firm.
Endnotes
For those who qualify, investment in VPF is a fantastic choice. Since they may use their Section 80C limit in full with VPF, which delivers far greater returns than every other government-provided investment scheme, they do not have to hunt for alternative tax-saving choices.
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