EPF v/s VPF: Understanding the key differences
What's the story
The Employee Provident Fund (EPF) and Voluntary Provident Fund (VPF) are two popular retirement savings schemes in India. While EPF is mandatory for salaried employees, VPF is an optional extension of it. Both offer tax benefits and help build a corpus for retirement, but differ in contribution flexibility and potential returns. Here's a look at the key differences between EPF and VPF to help you make an informed decision.
#1
Contribution flexibility
EPF contributions are mandatory for employees earning below a certain limit, with a fixed percentage deducted from salary. The employer also contributes an equal amount. VPF, on the other hand, allows employees to voluntarily contribute any amount beyond the EPF deduction. This flexibility lets individuals adjust their savings based on financial goals and capacity.
#2
Interest rates and returns
Both EPF and VPF offer attractive interest rates, which are tax-free. The interest rate for EPF is set by the government every year, while VPF can yield higher returns as it is based on the same interest rate as EPF but without any upper limit on contributions. This makes VPF a lucrative option for those looking to maximize their retirement savings.
#3
Tax benefits
Contributions to both EPF and VPF are eligible for tax deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh per annum. The interest earned on these accounts is tax-free, and withdrawals after five years of continuous service are also exempt from tax. This makes both options attractive for tax planning purposes.
#4
Withdrawal rules
EPF allows partial withdrawals under certain conditions, such as medical emergencies or home purchase, after a minimum service period. Full withdrawal is permitted only after retirement or job change. VPF does not have such restrictions but retains similar withdrawal rules as EPF regarding service duration before full withdrawal eligibility without penalties.