VPF vs PPF | Which One is Better?

VPF and PPF are two popular investment schemes offered by the government of India. VPF stands for Voluntary Provident Fund, while PPF stands for Public Provident Fund. In this article, we will discuss VPF vs PPF, and which one is better for you.

These investment schemes are designed to help individuals save for their future needs and provide them with tax benefits. However, many people get confused between these two investment schemes and are not sure which one to choose.

What is VPF?

VPF is a voluntary contribution made by an employee to their Employee Provident Fund (EPF). The EPF is a retirement benefit scheme offered by the government of India to employees working in the private sector. The EPF is managed by the Employees’ Provident Fund Organisation (EPFO), which is a statutory body under the Ministry of Labour and Employment.

Employees can contribute up to 12% of their basic salary to their EPF account, and their employer also contributes an equal amount. However, if an employee wants to contribute more than 12% of their basic salary to their EPF account, they can do so through VPF. The maximum contribution limit for VPF is not fixed and varies from company to company.

VPF contributions are deducted from the employee’s salary on a monthly basis and are invested in the same way as EPF contributions. The interest rate on VPF is the same as that of EPF, which is currently 8.1% per annum.

What is PPF?

PPF is a savings scheme offered by the government of India for individuals to save for their long-term financial goals. The scheme was introduced in 1968 and is managed by the Ministry of Finance. PPF accounts can be opened at post offices or designated bank branches.

The minimum investment amount for PPF is Rs. 500 per year, and the maximum investment limit is Rs. 1.5 lakh per year. The maturity period of a PPF account is 15 years, and the interest rate is set by the government of India every quarter. The current interest rate on PPF is 7.1% per annum.

VPF vs PPF

Eligibility

VPF is available only to employees who are members of the EPF scheme, while PPF can be opened by any resident of India, including salaried and non-salaried individuals.

Investment Limit

The maximum contribution limit for VPF is not fixed and varies from company to company. On the other hand, the maximum investment limit for PPF is fixed at Rs. 1.5 lakh per year.

Interest Rate

The interest rate on VPF is the same as that of EPF, which is currently 8.5% per annum. The interest rate on PPF is set by the government of India every quarter and is currently 7.1% per annum.

Maturity Period

The maturity period of VPF is the same as that of EPF, which is until the employee retires or leaves the job. The maturity period of PPF is 15 years, which can be extended for a further 5 years.

Withdrawal

Withdrawal from VPF is subject to the same rules and regulations as EPF. Withdrawal from PPF can be made after the completion of the 5th financial year, subject to certain conditions.

Which one is better? VPF or PPF?

Both VPF and PPF have their own advantages and disadvantages, and choosing the right investment option depends on your individual financial goals and circumstances. Here are some factors to consider when choosing between VPF and PPF.

Tax Benefits

Both VPF and PPF offer tax benefits under section 80C of the Income Tax Act, 1961. Contributions made to VPF and PPF are eligible for tax deduction up to a limit of Rs. 1.5 lakh per year. The interest earned on both VPF and PPF is also tax-free.

Investment Horizon

If you are looking for a long-term investment option, PPF may be a better choice as it has a fixed maturity period of 15 years. On the other hand, VPF has no fixed maturity period and can be withdrawn when you leave your job or retire.

Flexibility

VPF offers more flexibility as there is no fixed investment limit, and you can increase or decrease your contributions as per your financial situation. PPF, on the other hand, has a fixed investment limit of Rs. 1.5 lakh per year, and you cannot increase or decrease your contributions.

Risk Appetite

VPF is considered to be less risky than PPF as it is managed by the EPFO, which is a government body. PPF, on the other hand, is subject to market fluctuations, and the interest rate is revised every quarter.

Here is a table summarizing the differences between VPF and PPF.

CriteriaVPFPPF
EligibilityAvailable to EPF members onlyAvailable to all residents of India
Investment LimitNo fixed maximum limitMaximum limit of Rs. 1.5 lakh/year
Interest RateCurrently 8.1% per annumCurrently 7.1% per annum
Maturity PeriodUntil retirement or job change15 years, extendable for 5 years
WithdrawalSubject to EPF rulesAfter completion of 5 years
Tax BenefitsTax deduction up to Rs. 1.5 lakh/year and tax-free interestTax deduction up to Rs. 1.5 lakh/year and tax-free interest

Note: Interest rates and investment limits are subject to change based on government policies and regulations.

VPF Contribution Guidelines

If you are an employee and a member of the Employee Provident Fund (EPF), you have the option to contribute additional funds to your EPF account through the Voluntary Provident Fund (VPF). Here are some guidelines for making VPF contributions:

  1. Eligibility: You must be a member of the EPF to make VPF contributions. VPF contributions are available only to employees who are part of organizations that have registered for the EPF scheme.
  2. Contribution Limit: There is no limit to the amount you can contribute to the VPF. However, the total contribution to EPF and VPF cannot exceed your basic salary and dearness allowance.
  3. Mode of Contribution: VPF contributions can be made through your employer. You can request your employer to deduct a certain amount from your salary every month and credit it to your VPF account.
  4. Frequency of Contributions: You can make VPF contributions on a monthly basis along with your EPF contributions. You can also make a lump sum contribution at any time during the year.
  5. Interest Rate: The interest rate for VPF is the same as that of EPF and is set by the government every year. Currently, the interest rate for VPF is 8.5% per annum.
  6. Withdrawal: You can withdraw your VPF contributions along with your EPF balance when you retire or leave your job. Partial withdrawals are allowed in certain cases such as medical emergencies, education, and home loan repayment.
  7. Tax Benefits: VPF contributions are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. The interest earned on VPF is also tax-free.
  8. Nomination: You can nominate one or more persons to receive the VPF amount in case of your death. You can change the nomination at any time during the period of your contribution.

It is important to note that VPF contributions are a long-term investment and cannot be withdrawn before retirement or job change. It is advisable to consult with a financial advisor before making any investment decisions.

VPF Tax Benefits

VPF or Voluntary Provident Fund is a type of investment option that is available to individuals who are members of the Employee Provident Fund (EPF). VPF offers a tax benefit under Section 80C of the Income Tax Act, 1961. Here are some details on the VPF tax benefit:

  1. Tax Deduction: VPF contributions are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. The maximum limit for tax deduction under this section is Rs. 1.5 lakh per annum. This means that if you contribute to VPF, you can claim tax deduction up to Rs. 1.5 lakh per annum.
  2. Employer Contribution: The employer’s contribution to the EPF and VPF is also eligible for tax deduction under Section 80C. However, the total amount of tax deduction cannot exceed Rs. 1.5 lakh per annum.
  3. Tax-free Interest: The interest earned on VPF is tax-free. This means that the interest earned on your VPF contributions is not taxable, and you do not have to pay tax on the interest earned.
  4. Withdrawal: If you withdraw your VPF contributions before completing 5 years, the amount withdrawn will be taxable in the year of withdrawal. However, if you withdraw your VPF contributions after completing 5 years, the amount withdrawn will be tax-free.
  5. Taxation of Interest in Excess of 9.5%: In case the interest earned on VPF contributions in any financial year is more than 9.5%, the excess interest will be taxable as income in that year.

In conclusion, VPF offers a tax benefit under Section 80C of the Income Tax Act, 1961. The contributions made to VPF are eligible for tax deduction up to a maximum of Rs. 1.5 lakh per annum, and the interest earned on VPF is tax-free. It is important to note that VPF is a long-term investment, and premature withdrawals may have tax implications. It is advisable to consult with a financial advisor before making any investment decisions.

VPF Withdrawal Rules

Withdrawal from Voluntary Provident Fund (VPF) can be done in certain circumstances, subject to certain rules. Here are the VPF withdrawal rules:

  1. Completion of 5 years: To withdraw from VPF, you must have completed 5 years of continuous service in the organization. If you have not completed 5 years of service, you cannot withdraw from VPF, except in case of some specific circumstances such as illness or permanent disability.
  2. Retirement: If you retire from your job, you can withdraw your VPF contributions along with your EPF balance. The entire amount is tax-free, provided you have completed 5 years of service.
  3. Resignation: If you resign from your job, you can withdraw your VPF contributions only if you have completed 5 years of continuous service. If you have not completed 5 years of service, you cannot withdraw from VPF, except in case of some specific circumstances such as illness or permanent disability.
  4. Termination: If your employment is terminated by your employer, you can withdraw your VPF contributions along with your EPF balance. The entire amount is tax-free, provided you have completed 5 years of service.
  5. Medical Emergency: If you need funds for medical emergencies, you can withdraw from VPF. You can withdraw up to 6 times your monthly basic salary and dearness allowance, subject to a maximum limit of the total corpus available in your VPF account. To withdraw for medical emergencies, you do not need to complete 5 years of service.
  6. Home Loan Repayment: If you have taken a home loan and need funds for repayment, you can withdraw from VPF. You can withdraw up to 90% of the total corpus available in your VPF account. To withdraw for home loan repayment, you do not need to complete 5 years of service.
  7. Education: If you need funds for higher education, you can withdraw from VPF. You can withdraw up to 50% of the total corpus available in your VPF account. To withdraw for education, you do not need to complete 5 years of service.

It is important to note that premature withdrawals from VPF may have tax implications. Withdrawals made before completing 5 years of service may be taxable in the year of withdrawal. It is advisable to consult with a financial advisor before making any withdrawal decisions.

VPF full form in Different Indian Languages

Here’s a table listing the full form of VPF in different Indian languages:

LanguageFull form of VPF
EnglishVoluntary Provident Fund
Hindiस्वैच्छिक आवंटन कोष (Swaichhik Avantan Kosh)
Tamilதனியார் சம்பாதித்த நிதியம் (Taniyar Sampathitha Nithiyam)
Teluguస్వయంపరిచయ సంపద నిధి (Swayamparichaya Sampada Nidhi)
Kannadaಸ್ವಯಂಚಾಲಕ ಸಂಪಾದನ ನಿಧಿ (Swayamchalaaka Sampadana Nidhi)
Malayalamസ്വയംഭരണ സമ്പാദന നിധി (Swayambarana Sampadana Nidhi)
Bengaliস্বেচ্ছাসেবক ভিত্তিক ধনাঢ্য তহবিল (Swechchasewak Bittik Dhanadhyo Tahabil)
Punjabiਸਵੈ-ਚੁਣੀ ਅਧਾਰੀ ਨਿੱਧੀ (Svai-chuni Adhari Nidhi)
Gujaratiસ્વચ્છંદ સંપૃક્ત નિધિ (Svachhand Samparkit Nidhi)
Marathiस्वेच्छिक निधी (Swechchik Nidhi)
Odiaସ୍ୱତଂତ୍ର ପ୍ରବନ୍ଧ ନିଧି (Svatantra Prabandha Nidhi)

It is important to note that while the full form of VPF may differ in different Indian languages, the concept and purpose of the VPF remains the same.

FAQs on VPF vs PPF

What is the difference between VPF and PPF?

VPF and PPF are both investment options that can be used to save for retirement. However, VPF is an extension of the Employee Provident Fund (EPF) and can only be availed by salaried individuals who are contributing to EPF. PPF, on the other hand, is a government-backed savings scheme that can be availed by any Indian citizen.

Which one offers higher returns, VPF or PPF?

Both VPF and PPF offer fixed returns on investment, which are subject to change every year. However, historically, PPF has offered slightly higher returns than VPF.

What is the minimum and maximum contribution limit for VPF and PPF?

The minimum contribution limit for both VPF and PPF is Rs. 500 per annum. The maximum contribution limit for VPF is not fixed, but it cannot exceed the employee’s basic salary plus dearness allowance. The maximum contribution limit for PPF is Rs. 1.5 lakh per annum.

Are VPF and PPF tax-free?

Yes, both VPF and PPF are tax-free investment options. Contributions made towards VPF and PPF are eligible for tax deductions under Section 80C of the Income Tax Act, and the interest earned and the maturity amount received from these schemes are tax-free.

Can I withdraw my VPF or PPF before maturity?

Yes, both VPF and PPF allow premature withdrawals, subject to certain conditions. In the case of VPF, an employee can withdraw the accumulated balance after completing five years of continuous service. In the case of PPF, premature withdrawals are allowed from the seventh year of investment, subject to certain conditions.

What happens if I fail to make contributions towards my VPF or PPF?

If you fail to make contributions towards your VPF or PPF, your account will become inactive. In the case of VPF, if an employee fails to make contributions for three years, the account will be considered dormant, and the employee will not be eligible for any interest. In the case of PPF, if you fail to make contributions for a year, your account will be considered inactive, and you will not earn any interest on your investment until you reactivate the account.

Can I avail a loan against my VPF or PPF?

Yes, both VPF and PPF allow individuals to avail loans against their investments. In the case of VPF, an employee can avail a loan against their VPF balance after completing five years of continuous service. In the case of PPF, an individual can avail a loan against their PPF balance from the third year of investment up to the sixth year.

Which one should I choose, VPF or PPF?

The choice between VPF and PPF depends on your eligibility and investment goals. If you are a salaried individual and contributing to EPF, VPF can be a good option as it offers higher returns than EPF. If you are not a salaried individual, PPF can be a good option as it is a government-backed scheme and offers good returns with a low risk. However, it is always advisable to consult a financial advisor before making any investment decisions.

Conclusion

To sum up, VPF and PPF are two popular investment options in India that can be used to save for retirement. VPF is an extension of the EPF and can only be availed by salaried individuals who are contributing to EPF, while PPF can be availed by any Indian citizen. Both VPF and PPF offer tax benefits and allow premature withdrawals and loans against the investment.

While VPF offers higher returns than EPF, historically PPF has offered slightly higher returns than VPF. The choice between VPF and PPF depends on the investor’s eligibility and investment goals. It is advisable to consult a financial advisor before making any investment decisions to ensure that the investment aligns with your financial objectives and risk appetite. Hope this information on VPF vs PPF is helpful.

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