In the fixed-income space, Voluntary Provident Fund (VPF) is one of the schemes through which employees can increase their contributions towards the Provident Fund (PF). Investing smartly in PF, in return, not only helps in generating wealth, but also in achieving early retirement plan goals.
What is Voluntary Provident Fund?
Open to any employee working in India, it gives a return of 8.10% per annum. By investing in this scheme, people get tax benefits under Section 80C of the Income Tax Act; returns on maturity, too, are not taxed.
How to invest more in VPF?
As the name suggests, VPF is voluntary; i.e., it will be deducted from your salary only after your approval. By choosing a VPF contribution, an Employees’ Provident Fund (EPF) account holder can choose an additional provident fund contribution.
The employee, however, should ensure their annual contribution, along with monthly EPF and monthly VPF, is not above ₹2.5 lakh per annum. Beyond this limit, the return on the EPF contribution becomes taxable.
How much to invest via VPF?
For this, you first need to know your annual EPF contribution. This can be done in two ways: by checking from pay slips, or calculating 12% of your basic salary.
Now, if an individual’s monthly salary is ₹50,000, the mandatory EPF will be ₹6,000. The annual EPF, therefore, will be ₹72,000, and maximum VPF amount will be ₹1.78 lakh ( ₹2.5 lakh- ₹72,000).