Home / Money / Personal Finance /  This is how you can earn maximum interest on Provident Fund (PF) balance

Provident Fund (PF) news: Investing smartly can not only help you in generating wealth but also helps in achieving your early retirement plan goals. Seeing the volatility in the equity markets, people are looking towards small saving schemes, which are backed by the Government to make some money. One such way is to increase your contributions toward Provident Fund (PF). VPF or Voluntary Provident Fund remains a good bet in the fixed-income space.

VPF or Voluntary Provident Fund 

VPF is open to any employee working in India and gives a return of 8.10% per annum. Investors in this scheme get a tax benefit under Section 80C of the Income-tax Act, plus returns on maturity are also tax-free.

How can a salaried person invest more in PF? 

VPF is deducted from your salary, only if you want it to. An EPF account holder can choose an additional provident fund contribution in one's EPF account by choosing a voluntary provident fund contribution. “For this, the employee needs to ask HR at the time of joining. However, in case an employee decides to choose VPF after joining, then he or she needs to inform the HR and accounts department of its recruiter before the beginning of a new financial year," said Kartik Jhaveri, Director — Wealth Management at Transcend Capital.

Under income tax laws, the interest earned and maturity proceeds of VPF are tax-free.

SEBI registered tax and investment expert Jitendra Solanki said that a recruiter won't have any problem if an employee decided VPF as the recruiter won't have to pay an equal monthly contribution on its employee's VPF contribution.

However, the employee must make sure that their annual contribution along with monthly EPF and monthly VPF doesn't cross 2.50 lakh per annum. He added that going beyond this 2.5 lakh annual contribution limit, one's return on the EPF contribution above 2.5 lakh will become taxable. 

How to check mandatory EPF contributions 

1) You can check your mandatory EPF contributions from your salary slip.

2) The second way is to calculate the 12% of your basic salary to know the mandatory EPF contribution. 

How much you can invest via VPF

Once you know your mandatory annual EPF contribution, subtract the same from 2.5 lakh to know how much you can invest via VPF. Calculating your annual VPF contributions Let's say you earn 50,000 per month as a basic salary. The mandatory EPF contribution comes to 6000 per month (12% of 50,000). The annual EPF contribution is 72,000 ( 6000 X 12). The maximum amount that you can invest via VPF will be 1,78,000 ( 2.5 lakh subtracted from 72,000) in a financial year.

An individual going for VPF can volunteer to contribute any part of his salary to the provident fund. The contribution needs to be more than 12% of the basic salary. The employer, however, doesn’t have to contribute any amount towards VPF.


Sangeeta Ojha
A business media enthusiast. Writes on personal finance, banking and real estate.
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