Voluntary Provident Fund (VPF): A Complete Guide for Salaried Employees

VPF stand for Voluntary Provident Fund. For salaried employees in India, the voluntary provident fund is one of the simplest ways to increase retirement savings while enjoying attractive, largely tax-efficient returns.

Yet many people only see a “VPF deduction” in their payslip and keep wondering what is vpf in salary is and whether they should increase or decrease it.

This blog breaks down what a VPF is, how it works, the latest vpf interest rate, tax rules, withdrawal norms, and how to start your voluntary pf contribution step by step.

What is VPF (Voluntary Provident Fund)?

VPF is an optional, additional contribution that an employee can choose to make over and above the mandatory 12% Employee Provident Fund (EPF) contribution from basic salary and dearness allowance (DA). 

It is not a separate scheme, but an extension of EPF under the same EPF account number and Universal Account Number (UAN).

In simple words, if you already have EPF through your employer, you can decide to put more of your salary into the same PF account as a voluntary provident fund contribution (VPF). This extra amount is called vpf contribution. 

Features of VPF

Some key features of VPF, as per the current VPF rules, are:

• Eligibility: Only salaried employees who are already covered under EPF (i.e., working in organisations registered with EPFO) can use VPF.
  
• Linked to EPF: VPF is not a new account. Your contributions go into the same EPF account and show up under the same UAN.
  
• Contribution flexibility: You can usually choose any percentage of basic+DA as a voluntary pf contribution, subject to the maximum limit norms.
  
• Employer’s role: The employer only facilitates the payroll deduction and PF deposit. There is usually no employer contribution in VPF.
  
• Interest: VPF earns the same interest as EPF, which is decided every year by EPFO and approved by the government.
  
• Risk profile: Backed by the government framework and EPFO, VPF is treated as a low-risk, fixed-income avenue.
  
• Long-term focus: Designed mainly as a retirement and long-term savings tool, though partial withdrawals are allowed under certain conditions.
  

Interest Rate in VPF

The voluntary pf interest rate is the same as the EPF interest rate declared for that financial year, because both are part of the same fund.

For FY 2024-25, EPF interest has been approved at 8.25% p.a., which means vpf interest rate is 8.25% p.a.

Key points about vpf interest rate:

• It is declared annually by EPFO’s Central Board of Trustees and approved by the Ministry of Finance.
  
• Interest is calculated on the running monthly balance, but is actually credited to your PF account at the end of the financial year.
  
• Historically, EPF/VPF rates have stayed attractive compared with many bank fixed deposits and are fully risk-free from a credit perspective, as the EPFO framework backs them.

For someone looking for stable, fixed-income style returns with strong safety, this interest rate makes VPF a strong contender.

Benefits of VPF

The benefits of VPF make it particularly attractive for medium to long-term goals and retirement. Here are a few:

1. High, stable returns vs bank FDs
   VPF usually offers a higher rate than most large-bank fixed deposits, without market volatility.
   
2. Compounding over long tenures
   Because PF contributions run throughout your working life, the compounding effect over 20–30 years can be substantial.
   
3. Tax advantages
   
   • Contributions can qualify for a deduction under Section 80C (old tax regime).
     
   • Interest is tax-exempt up to certain contribution thresholds.
     
   • Maturity is tax-free if you satisfy service length conditions.

Together, this gives VPF an “EEE” (Exempt–Exempt–Exempt) profile when conditions are met.

4. Automatic, disciplined saving
   Since VPF contribution is deducted directly from salary, it enforces forced savings and reduces spending.
   
5. No separate account opening hassle
   You use the same EPF account, making it simple to manage under one UAN.
   
6. Suitable for conservative investors
   If you are risk-averse but still want better returns than a typical savings account or short-term FD, VPF fits very well.

Overall, the vpf tax benefit, interest rate, and safety make it one of the most efficient fixed-income avenues for salaried individuals.

Who Can Opt in for VPF?

As per prevailing vpf rules, you can opt for VPF if:

• You are a salaried employee in an organisation covered under the EPF & MP Act and registered with EPFO.
  
• You already have an active EPF account and UAN.
  
• Your employer’s payroll system supports VPF deductions.

Self-employed professionals, consultants, and those not covered under EPF cannot open a standalone VPF account.

Most organisations allow you to start or modify VPF only at the beginning of a financial year or a specific cycle, so check your HR/payroll timelines.

Documents Required to Open a VPF Account

Since VPF runs through your existing EPF account, there is no separate KYC with EPFO in most cases. However, your employer may ask for or verify:

• Your UAN (Universal Account Number)
  
• PAN (Permanent Account Number)
  
• Aadhaar (often already linked to UAN)
  
• Bank account details (salary + PF withdrawal account)
  
• An internal VPF application or declaration form (physical or digital) mentioning the percentage/amount of VPF contribution you want.
  

If your EPF KYC is already fully completed and approved (PAN, Aadhaar, bank details), setting up VPF is usually just a one-form step with HR.

How to Open a VPF Account

You don’t “open” a new account for your Voluntary Provident Fund. You just start contributing more to your existing PF account. Here are the next steps you should take if you have a PF account:

1. Check with HR/Payroll
   Ask your HR/payroll team if VPF is allowed and what the internal process is. Almost every EPF-covered employer has a mechanism.
   
2. Decide your contribution percentage
   You can choose how much extra you want to contribute as VPF from your basic+DA, subject to the vpf contribution limit (explained next). For example, you may decide to contribute an additional 5%, 20%, or even higher.
   
3. Fill the VPF request form
   
   • Some employers use a physical “Voluntary Provident Fund” form.
     
   • Others have an online HR portal where you select the VPF percentage.

4. Submit and confirm
   Once you submit, HR will process the change. From the next payroll cycle, your voluntary provident fund contribution starts getting deducted from your salary.
   
5. Check the payslip and the EPFO passbook
   After implementation, verify that the deduction appears correctly in your payslip and later reflects in your EPF passbook.
   

VPF Contribution Limit, Maximum Contribution and How Much You Can Invest

The VPF contribution limit is governed by EPF rules:

• You can contribute up to 100% of your basic salary + dearness allowance as employee contribution (EPF + VPF together).
  
• There is no monetary cap on how much you can contribute as VPF in theory, so the maximum VPF contribution or VPF maximum limit is effectively 100% of basic+DA (over and above the statutory 12% EPF, depending on your employer’s policy).

However, from a tax perspective, you must keep in mind:

• Tax deduction under Section 80C is capped at ₹1.5 lakh per year across all 80C instruments (EPF, VPF, PPF, ELSS, life insurance, etc.).
  
• From FY 2021-22 onwards, interest on employee contributions (EPF + VPF combined) above ₹2.5 lakh per year is taxable; beyond this threshold, VPF is taxable on the interest portion each year. For certain government employees, this limit is ₹5 lakh.

While there are no restrictions on the maximum limit of VPF, the sweet spot is often where contributions are tax-efficient and fit into your overall financial plan.

VPF Withdrawal Rules

VPF withdrawal rules are largely the same as EPF withdrawal rules, because they fall under the same PF account:

1. Withdrawal on retirement or job change
   
   • On retirement, you can withdraw the full EPF+VPF balance.
     
   • On a job change, you are expected to transfer the balance to your new employer’s EPF account rather than withdraw, to preserve continuity.
     
2. Partial withdrawals (advances)
   Partial withdrawals are allowed for specific purposes such as:
   
   • Purchase or construction of a house
     
   • Repayment of home loan
     
   • Children’s education or marriage
     
   • Medical emergencies
     These are subject to service conditions, limits, and documentation.
     
3. Full withdrawal before 5 years of continuous service
   
   • If you withdraw your PF (including VPF) before completing 5 years of continuous service, the withdrawal becomes taxable, and TDS may be deducted.
     
   • This is why people talk about a vpf lock in period, even though there is no separate statutory lock-in only for VPF.
     
4. Lock-in and tax
   There is no separate, fixed “maturity date” like PPF. Your PF (including VPF) stays invested as long as you remain employed and do not withdraw. However:
   
   • For tax-free status on the total PF withdrawal, 5 years of continuous service is the key condition.
     
   • For interest taxation, the ₹2.5 lakh annual contribution threshold rule applies each year, regardless of when you withdraw.
     

In short, VPF is best treated as a long-term retirement product. Use partial withdrawals only for genuine needs, keeping the tax implications in mind.

Another long-term investment plan is saving daily in small amounts in Digital Gold through the Jar app.

Tax Benefits on VPF

Tax treatment is a big part of voluntary provident fund tax benefit planning. Here is how it works under current rules:

1. Contributions - Section 80C

• Employee contributions to EPF and VPF together are eligible for deduction under Section 80C, up to ₹1.5 lakh in a financial year (total across all 80C investments).
  
• So if you are asking, does vpf comes under 80C or VPF comes under which section, the answer is: contributions qualify under Section 80C of the Income Tax Act, 1961.
  
• Under the old tax regime, you can claim this 80C deduction; under the default new tax regime, 80C deductions, including VPF, are not available unless future law changes or you opt for the old regime.
  

Check out a few other investment options under Section 80C.

2. Interest - Tax Exemption and Threshold

The vpf tax exemption on interest is subject to the employee-contribution threshold:

• If your annual EPF+VPF employee contribution ≤ ₹2.5 lakh, the interest earned on that portion is tax-free.
  
• If it exceeds ₹2.5 lakh, then the interest earned on the excess contribution becomes taxable every year and must be reported as income. For government employees with no employer contribution, this limit is ₹5 lakh.
  

This is why some people say vpf is taxable: strictly speaking, VPF interest is partly taxable beyond the threshold, and tax-free up to the limit.

3. Withdrawal and Maturity

• If you withdraw your EPF+VPF after 5 years of continuous service, the entire amount (contribution + interest) is usually tax-free, making many investors feel that is vpf tax free is “yes” in practice when all conditions are satisfied.
  
• If you withdraw before 5 years, several things can happen:
  
  • 80C deductions claimed earlier may be reversed.
    
  • Interest may become taxable.
    
  • TDS may be deducted by EPFO at withdrawal.
    

In total, vpf tax benefit is powerful when:

• You are comfortably within the ₹2.5 lakh EPF+VPF contribution limit, and
  
• You plan to keep working and avoid withdrawing PF for at least 5 years.
  

FAQs on VPF

1. What is VPF in simple terms?

If you still wonder what is vpf, think of it as: “I want to save more towards my PF than the mandatory 12%, at the same EPF interest rate, automatically from salary.”

2. What is VPF in salary?

In your payslip, what is vpf in salary is that extra deduction from basic+DA that you voluntarily choose, on top of the mandatory EPF employee contribution. It reduces your in-hand salary but increases your PF balance.

3. What is a voluntary provident fund contribution?

A Voluntary Provident Fund refers to the extra amount (beyond the mandatory EPF) that you tell your employer to deduct from your basic+DA and deposit into your PF as VPF.

4. Is there any maximum limit for contribution in Voluntary Provident Fund?

There is no fixed rupee cap; the law allows you to go up to 100% of basic+DA as employee contribution. So, effectively, the vpf maximum limit is defined by your salary level and your employer’s payroll rules. However, invest keeping the ₹1.5 lakh 80C limit and ₹2.5 lakh interest-tax threshold in mind.

5. Is VPF tax-free?

VPF can be fully tax-free or partly taxable, depending on how much you contribute and when you withdraw:

• Tax-free scenario (ideal case)
  VPF generally behaves as tax-free (EEE – Exempt on contribution, interest, and withdrawal) when:
  • Your total employee contribution to EPF + VPF is up to ₹2.5 lakh per financial year, and
  • You withdraw after completing 5 years of continuous service (usually at retirement or job change with transfer).
• Taxable scenario (on the excess)
  Part of VPF becomes taxable when:
  • Your EPF + VPF employee contribution exceeds ₹2.5 lakh in a financial year – in this case, the interest earned on the excess contribution is taxable each year, and
  • If you withdraw your PF (including VPF) before 5 years of continuous service, the withdrawal can also become taxable.

So, VPF is tax-free up to the prescribed limits and holding period, but beyond those limits or on early withdrawal, some interest and withdrawal amounts can be taxable.

6. Does VPF come under 80C?

Yes, employee VPF contributions (together with EPF) are eligible for deduction under Section 80C, shared with other eligible instruments.

7. What is the VPF contribution vs the EPF contribution?

• EPF contribution (employee portion) is mandatory, 12% of basic+DA (in most organisations).
  
• VPF contribution is any additional voluntary amount you choose to contribute, up to 100% of basic+DA in total.
  

8. How to open a VPF account and start voluntary PF contribution?

As covered earlier under “How to open a VPF account”, to how to open vpf account, you simply contact HR, fill the VPF form or update online, and decide your voluntary pf contribution percentage. No separate EPFO visit is needed.

9. What is the VPF lock-in period?

There is no rigid, product-style vpf lock in period like a 15-year PPF. However, for tax purposes:

• Withdrawing PF (including VPF) before 5 years of continuous service can make it taxable.
  
• Hence, many people treat 5 years as a practical vpf locking period, especially if they want full tax benefits.
  

10. Is VPF better than PPF or NPS?

Each serves a different need:

• VPF: Great for employees wanting high, stable interest and simplicity via salary deductions.
  
• PPF: Good for self-employed and those wanting a long-term tax-saving option outside salary.
  
• NPS: Market-linked, more suited for those seeking higher long-term growth with some equity exposure, but with different withdrawal rules and taxation.
  

Depending on your goals and tax situation, you can use all of them in combination.