If you’re at present investing your hard-earned cash in the Employees’ Provident Fund (EPF) and need to make investments more at larger rates of interest then you are able to do by puting your cash in the voluntary provident fund (VPF).
You can contribute a sum larger than the necessary 12% out of your EPF account in VPF. Most importantly, financial savings in VPF get transferred simply identical to your cash in the EPF in case of a job change, as each are linked to your Account Number (UAN). Notably, VPF additionally follows EPF-like withdrawal guidelines.
Why make investments in voluntary provident fund or VPF?
Currently, rates of interest supplied by the banks are very low as in comparison with schemes because the EPF or VPF. In easy phrases, rates of interest are at document lows, and it isn’t sensible to maintain investing in many long-term debt funding devices providing low returns.
In comparability, the EPF offered an rate of interest of 8.5% in the monetary yr 2021 that ended March 2021, providing one of many highest charges amongst long-term debt-saving devices. Moreover, rates of interest are usually in schemes equivalent to EPF and VPF than debt devices equivalent to public provident fund (PPF).
In FY20, EPF additionally supplied an rate of interest of 8.5%. Since rates of interest are the identical in EPF and VPF, you would possibly see your cash develop sooner in the voluntary provident fund. Interest charges for EPF are introduced by the Indian authorities in the direction of the top of a monetary yr.
VPF additionally provides the identical tax advantages as EPF. It falls underneath the exempt-exempt-exempt (EEE) tax construction—you get tax deduction profit on the time of funding, and there’s no tax payable on accrual or withdrawal.
However, you would possibly need to be aware of the taxation system that’s implied on EPF investments, particularly after Budget 2021. Currently, an worker’s contribution above ₹2.5 lakh is taxable.
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