The Employees’ Provident Fund Organisation (EPFO) revealed a favorable interest rate of 8.25% for the financial year 2023-24, surpassing the previous years. This not only impacts the mandatory 12% EPF contributions from employees and employers but extends to voluntary contributions, specifically through the Voluntary Provident Fund (VPF).
VPF is an extension of the Employees’ Provident Fund, which offers a compelling way for salaried individuals to enhance their retirement savings. Here are the essential details:
The VPF interest rate for the financial year 2023-24 stands at 8.25%. This favorable rate surpasses previous years, making it an attractive option for long-term planning.
VPF allows individuals to contribute beyond the mandatory 12% EPF contributions. You can invest up to 100% of your Basic Salary and Dearness Allowance. These contributions share identical rules with EPF in terms of interest rates, withdrawal, maturity, and taxation.
VPF benefits from a government-backed savings scheme, ensuring low risks and high returns. Its interest accrual aligns with that of EPF, making it a superior choice compared to other fixed-income options.
VPF falls under the EEE category (exempt on contribution, exempt from the principal, exempt on interest). This classification makes it an excellent tax-saving option. Contributions up to ₹1.5 lakh per annum and the interest accrued are exempt from tax under Section 80C.
Cash Flow Considerations:
While increasing VPF contributions can boost your retirement corpus, be mindful of its impact on your take-home pay over time.
Although VPF has a temporary lock-in until retirement, EPFO rules allow partial withdrawals for specific purposes. This flexibility emphasizes VPF’s role as a retirement-focused investment.
Combining VPF with other retirement-oriented instruments like PPF (Public Provident Fund) and NPS (National Pension System) for a balanced and comprehensive retirement strategy.
VPF offers stability, tax benefits, and an attractive interest rate, making it a prudent choice for those planning their financial future.