Voluntary Provident Fund (VPF): Interest Rate, Benefits, Tax Exemption, Limit, Withdrawal Rules

By Ektha Surana


Updated on: Jul 10th, 2024


5 min read

The VPF or Voluntary Provident Fund is a non-compulsory investment made by salaried employees over and above the EPF i.e. Employees Provident Fund. The major advantage is that it is a government-backed savings scheme with low risks and high returns. The VPF, full form is Voluntary Provident Fund. Learn more about VPF in this article. 

What is Voluntary Provident Fund?

Voluntary Provident Fund (VPF) aka Voluntary Retirement Fund is a voluntary fund contribution from the employee towards his Provident Fund (PF) account. This contribution is beyond the 12% of contribution by an employee towards his EPF. The maximum contribution is up to 100% of Basic Salary and Dearness Allowance. Interest is earned at the same rate as the EPF.

Employers are under no obligation to contribute to their employees’ VPF portfolio. Likewise, an employee is also under no obligation to contribute to the VPF. Once the contribution is chosen in VPF, the same cannot be terminated or discontinued before the base tenure of 5 years is completed. 

Who Can Invest in Voluntary Provident Fund?

A VPF is an extension of the EPF. The VPF option is available only to salaried individuals who receive their monthly payments through a specific salary account.

Benefits of Voluntary Provident Fund

The VPF falls under the EEE category ( EEE – exempt on contribution; exempt from the principal; exempt on interest) making it an excellent tax saving option. It also helps the employee amass a sizeable savings portfolio and help him/her during big life milestones.

However, Budget 2021 has placed limitations on the EEE exemption category. From FY 2021-22 onwards, tax exemption on accrued interest will be applicable only up to Rs 250,000 contribution. Interest on excess contribution will be taxable, and TDS will be deduction on such amount.

Other benefits are

  • Safe Investment Option:
    The scheme is managed by the Government of India and has a fixed interest accrual. Hence, it is considered as a risk-free investment compared to the long-term investments offered by other private players.
  • Easy to Apply:
    To open a VPF account, an employee must approach his HR/Finance team and advise them to raise a request for an additional contribution to the VPF through a registration form. The existing EPF account will serve as the additional VPF account.
  • High returns:
    Currently, interest is accrued at 8.15% per annum under this scheme. Contributions up to 1.5 lakhs p.a. can be claimed as a deduction under Section 80C, and interest accrued on contributions up to Rs 2.5 lakhs is exempt from tax, resulting in higher returns in long-term.
  • Easy transfer:
    The account can be transferred from one employer to another upon changing jobs.

How to Open a VPF Account?

An employee must ask his/her employer or the HR department in writing to open a VPF account and deduct an additional amount from salary for VPF. The employee must provide personal information and the amount to be contributed monthly from the basic salary towards the VPF account. 

A VPF account can be opened at any time during the financial year. Please note that an employee cannot discontinue the investment under VPF during the financial year. In case the employee withdraws the VPF amount within five years of opening the account, the amount will be taxable.

VPF Interest Rate 

The Indian government sets the VPF interest rate, which is revised yearly. The VPF interest rate for 2023-24 is 8.25% p.a.

VPF Tax Benefits

VPF is one of the best options in India to save tax. Under Section 80C of the Income Tax Act, 1961, employees can claim tax benefits of up to Rs.1.5 lakh on VPF contributions. The interest on VPF is also exempt from tax subject to the threshold limit of Rs 2,50,000 in contribution. The maturity proceeds of VPF are tax-exempt when withdrawn after five years of opening the VPF account.

VPF Tax Exemption

The VPF falls under the EEE (Exempt Exempt Exempt) category. Thus, the VPF contribution, interest and principal/maturity amount are tax-free. However, if the VPF amount is withdrawn within five years of investing, they will be liable to tax. The withdrawal amount is tax-free only when it is withdrawn after five years of investment.

VPF Contribution Limit

There is no maximum or minimum VPF contribution limit per year. An individual can also contribute 100% of his/her monthly income (salary + dearness allowance) towards VPF. The employer is not obligated to contribute to the VPF account. Also, once the VPF account is opened, it cannot be closed for five years. The contributions cannot be discontinued before five years of account opening.

VPF Withdrawal Rules

The fund allows partial withdrawals as loans with also the possibility of complete withdrawals. If the withdrawal happens before the 5-year minimum tenure, then tax will be applicable on the accumulated maturity amount. Once the employee resigns or retires from the employment, the final maturity amount is paid to him. At the time of the untimely death of the account holder, the nominee can get possession of the accumulated funds in the VPF account. 

The VPF fund is mainly popular as the accumulated money can be withdrawn at any given time. In case of an unforeseen financial emergency, one can always fall back to his VPF account. The account can be broken for many reasons, which includes :

  • For medical emergencies of the employee or family
  • For marriage or higher education of the employee
  • For buying a new land/house or construction of the house
  • For education expenses of children

VPF Lock-in Period

The lock-in period of a VPF account is five years. If an employee withdraws an amount from EPF before five years, it will be liable to tax, and such amount will be taxable as income from salary, TDS u/s 192A will also be deducted on such transaction.

How to Check the VPF Balance?

Employees can check the VPF balance online by following the below process: 

  • Visit the official website of EPFO.
  • Under the 'Our Services' tab, click the 'For Employees' option. 
  • Click the 'Member Passbook' option under the 'Services' heading. 
  • Enter the UAN and password and click the 'Login' button.
how to check vpf balance
  • Select the Member ID and click the 'View Passbook' option.
VPF savings
  • The EPF passbook will contain the details of your VPF account. 







Any salaried individual

Any salaried individual having EPF account

All citizens of India, whether resident or non-resident, between 18-60 years

Rate of Interest



9% to 12% (Market linked)

Employer contribution

12% of basic salary + dearness allowance

No contribution

Optional for private companies

Employee contribution

12% of basic salary + dearness allowance

Up to 100% of basic salary + dearness allowance

10% of basic salary + dearness allowance

Period of investment

Till retirement or unemployment

Earlier of the below:

  • Five years or
  • Unemployment 

Till retirement 

Tax benefits

Tax deduction on contributions up to Rs.1.5 lakh under Section 80C

Tax deduction on contributions up to Rs.1.5 lakh under Section 80C

Tax deduction up to Rs.1.5 lakh under Section 80CCE, Rs. 50,000 under 80CCD(1B) and 80CCD(2) with a threshold limit of Rs 7.5 lakhs.

Partial withdrawal

Allowed for specified purposes

Allowed for specified purposes

Allowed for specified purposes after three years of investment

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Frequently Asked Questions

Does VPF come under Section 80C?

Yes. All contributions made to VPF during the financial year of up to Rs.1.5 lakh can be claimed for tax deduction under Section 80C of the Income Tax Act.

What is the maximum VPF contribution?

There is no maximum contribution limit for VPF. An employee can contribute 100% of his/her basic salary plus dearness allowance for VPF.

What is the current interest rate on VPF?

The interest rate of VPF for the current year, i.e. FY 2023-24, is 8.15%. 

Is VPF better than PPF?

VPF is better than Public Provident Fund (PPF) in many ways. Usually, the VPF interest rate is better than PPF. For FY 23-24, the interest rate of VPF is 8.15%, while the interest rate of PPF is 7.1%. Additionally, the entire VPF amount can be withdrawn after five years of opening the account. But, PPF has a lock-in period of 15 years. PPF is more suited for individuals looking to invest for a long-term goal, such as a child's marriage, child education or down payment of a loan. Also, PPF has a limit of Rs 1.5 lakhs per annum on contribution. However, no such limit exists in VPF.

Is VPF eligible for tax benefits?

Yes. VPF comes under the EEE tax category. Thus, the VPF contributions, interest and maturity proceeds are exempt from tax. However, any VPF amount withdrawn within five years of investment is liable for tax. However, from FY 2021-22 interest accrued on contribution up to Rs 2.5 lakhs will be exempt. Interest on excess contribution will be subject to tax.

Who can open VPF?

Since the VPF scheme is an extension of the EPF, only salaried employees who have an EPF account and receive monthly payments in their salary accounts are eligible to open a VPF account.

Will my VPF account get affected if I change jobs?

The VPF account is linked to your UAN / Aadhar Card. So, it is very easy to transfer your account from one employer to another using the UAN.

About the Author

Multitasking between pouring myself coffees and poring over the ever-changing tax laws. Here, I've authored 100+ blogs on income tax and simplified complex income tax topics like the intimidating crypto tax rules, old vs new tax regime debate, changes in debt funds taxation, budget analysis and more. Some combinations I like- tax and content, finance & startups, technology & psychology, fitness & neuroscience. Read more


Quick Summary

VPF is a non-compulsory investment, offering tax benefits, safe returns, easy transfers, and clear withdrawal rules. It's part of the EPF and managed by the Indian government. The lock-in period is five years with no contribution limit. Exemptions available under Section 80C and 80CCD. Employees can check balance online. VPF offers interest at 8.15% and falls under EEE tax-exempt category.

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