Voluntary Provident Fund (VPF)

Written By
Dr. Ananya Sen, CFP®

What is VPF?

Under the EPF scheme, it is mandatory for the employee and the employer to contribute 12% of the employee's Basic Salary and Dearness Allowance (DA). However, if an employee wishes to build a larger retirement corpus, they can voluntarily choose to contribute more than the mandatory 12%. This excess contribution is known as the Voluntary Provident Fund (VPF).

Key VPF Rules & Benefits

• Contribution Limit: You can contribute up to 100% of your Basic Salary + DA towards VPF.
• Same High Interest: VPF contributions earn the exact same interest rate as standard EPF (currently 8.25% p.a.).
• Employer Match: Your employer is NOT required to match your VPF contributions. They will continue to match only the mandatory 12%.
• Tax Exemption (80C): VPF contributions qualify for tax deductions under Section 80C, up to ₹1.5 Lakhs.
• Lock-in Period: Just like EPF, VPF is locked in until retirement or resignation (minimum 5 years of continuous service for tax-free withdrawal). Partial withdrawals are allowed for specific emergencies like medical, education, or housing.

New Taxation Rule on VPF (The ₹2.5 Lakh Threshold)

Historically, VPF was entirely tax-free (EEE). However, the government introduced a new rule restricting tax-free interest for very high contributors:

How to Opt for VPF

You cannot start VPF online through the EPFO portal. You must approach your employer's HR or Payroll department at the beginning of the financial year. They will provide a declaration form where you can state the percentage or fixed amount you want to deduct additionally from your monthly salary towards VPF.