Making a contribution towards Employees Provident Fund (EPF) that is just the required amount is definitely a wrong decision. You should increase the amount of your EPF, which is 12 per cent of your basic pay at present. Via the Voluntary Provident Fund contribution, you can raise your contribution amount towards EPF.
The VPF is the mechanism by which you can raise the amount of your contribution to the EPF, which is actually just 12% of your standard or basic salary. Therefore, if you wish to contribute up to 100% of your basic wage, you can do so by the Voluntary Provident Fund, which is just an expansion of the EPF, since the advantages of the EPF are incorporated in the VPF.
Higher returns or interest rate as compared to banks
For FY 2019-20, the interest rate on the EPF was 8.50 per cent. Contrast this with banks and you fully understand that what banks in India are actually providing is a decent 3 per cent over and above. It is necessary to note that only an aspect of the Employees Provident Fund is the Voluntary Provident Fund. So, you can transfer the same conveniently if you wish to switch your job. Each employee who is on a company’s payroll will be eligible for the EPF. One of the major attractions for contributions to the provident fund for employees is the higher interest rate per annum which keeps changing every financial year.
Contribution through the VPF to the EPF compels us to a tax gain under the Income Tax Act Sec80C. So, under Sec80C of the IT Act, if you make a contribution up to Rs 1.5 lakhs, the same can be claimed for tax benefit. One other interesting part to consider is that the transfer from one job to the other is straightforward since the Voluntary Provident Fund is linked to your Aadhaar specifics. If you have extra income from your monthly income, go for a VPF.
Interest earned from VPF is completely tax-free
The interest benefit derived from the VPF is absolutely tax-free in the possession of the subscriber, given that the amount is withdrawn after the first contribution of 5 years. So, if you started your investment on October 1, 2020, then from Oct 1, 2025, the interest earned becomes tax-free. So, in brief, five years must be completed, from the very first contribution to reap tax benefits.
Safety and security
The Employees Provident Fund and the Voluntary Provident Fund are incredibly stable because they are managed and backed by the central government of India. That’s why certain individuals, even after quitting a job and not finishing 58 years of age, prefer to keep the money in the EPF. Nevertheless, you can also keep the money in the EPF if you lose your employment and retire early and are unemployed but the interest earned will be taxable. So, you must consider the same thing.
The easiest, safest and optimal way to invest is the Voluntary Provident Fund. That’s because it’s very hard to achieve good interest rates at the moment and that, too, is not taxable. As they are sponsored by the Government of India, it’s also very secure to start contributing in VPF.
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