Can an employee make VPF contribution? Is there a limit on the amount of VPF contribution that an employee can make?

As per Section 6 of the Provident Fund Act, if an employee so desires, he/she can make provident fund contribution in excess of the statutory rate subject to the condition that the employer shall not be under an obligation to pay any contribution over and above its contribution payable under the law. Thus, an employee can make VPF contribution at any time while he/she is a contributory member of Employees' Provident Fund (EPF). There is no limit on the amount of VPF contribution that an employee may make i.e. total of EPF and VPF contribution maybe 100% of monthly pay.

Can an employer make VPF contribution for its employees? Is there a limit on the amount of VPF contribution that an employer can make for its employees?

Yes, although there is no obligation on the employer, the employer can also make VPF contribution for its employees. There is no limit on the amount of VPF contribution that an employer may make i.e. total of EPF and VPF contribution may be 100% of monthly pay. Where VPF contribution by the employer is allocated out of employee's CTC, employee agreement for contribution at a higher rate should be obtained.

What are the tax implications on VPF contribution by the employee and the employer?

Under Section 80C of the Income-tax Act, total of EPF and VPF contribution by the employee is eligible for tax deduction in the hands of employee subject to overall limit of Rs 1.5 lakh per annum. Under Rule 6 of Part A of Fourth Schedule-Part A of the Income-tax Act, total of EPF and VPF contribution by the employer in excess of 12% of salary is taxable in the hands of employee. Also, where the aggregate of employer's contribution to EPF, NPS (National Pension System) and SAF (Superannuation Fund) exceeds INR 7.5 lakh in a financial year, the excess along with accrued interest thereon is taxable in the hands of employee.

What is required to be done for an employee to avail VPF option?

The option for VPF contribution can be availed by an employee by informing his/her employer in a manner prescribed by the employer. On receiving VPF contribution request from an employee, the employer will deduct VPF contribution from the employee's salary and deposit in the provident fund account of the employee.

How is VPF contribution reflected in provident fund passbook of an employee? Will an employee receive interest at the notified rate on the VPF?

The VPF contribution will be reflected in the same EPF account. No additional account will be opened for the VPF contribution. The EPF passbook will show the statutory contribution by the individual clubbed with VPF contribution made by the individual and employer's contribution. Interest on VPF will be the same as the notified interest rate for EPF.

When can VPF be withdrawn by an employee?

VPF is subject to same withdrawal rules as EPF. Both VPF and EPF can be withdrawn under following circumstances: a. On retirement from services after attaining the age of 55 years b. On retirement on account of permanent and total incapacity to work c. Immediately before migration from India for permanent settlement abroad or for taking employment abroad d. On termination of service in case of mass or individual retrenchment e. On termination of service under a voluntary retirement scheme f. On ceasing to be an employee in any establishment to which the Provident Fund applies provided that he/she has not been employed in any other establishment to which the Provident Fund Act applies for continuous period of not less than 2 months immediately preceding the date on which he / she makes application for withdrawal. In addition, an employee may claim partial withdrawal or advance as per prescribed rules under specific circumstances, for instance, marriage, education, purchasing a house etc. The member can also claim an advance in the event of being unemployed for a month for up to 75% of the amount in his/her EPF account which will include VPF contribution.

Can VPF be transferred to a new employer on change in employment? If it can be transferred, is it mandatory for an employee to continue VPF contribution with the new employer as well?

Yes, as both EPF and VPF are contributed to the same EPF account, therefore, both can be transferred to the new employer on change in employment. It is not mandatory for an employee to continue VPF contribution with the new employer. VPF contribution can be initiated and stopped at any time subject to employer's policy if any.

Are withdrawal rules same for EPF (Employees' Provident Fund) and VPF? If an employee closes his / her EPF account, provided conditions are met, would the VPF account also close automatically?

Yes, withdrawal rules for EPF and VPF are same. As both EPF and VPF are clubbed, if EPF account is closed under specific circumstances listed in response to question 6 above, VPF is closed automatically.

Is withdrawal of VPF, provided conditions are met, taxable in the hands of employee?

Tax implications on withdrawal of EPF and VPF are same. EPF and VPF withdrawals are not taxable under the following circumstances: a. If employee has rendered continued service for 5 years or more; or b. If the employment has been terminated by reason of ill-health or by the contraction or discontinuance of the employer's business or other cause beyond the control of the employee; or c. If, on the cessation of his employment, the employee obtains employment with new employer, the total accumulated balance is transferred to Provident Fund maintained by the new employer; or d. If the total accumulated balance is transferred to NPS Account. Where the amount is transferred to new employer, the period of service with previous employer is included to calculate continuous service of 5 years or more.

Will the accrued interest in VPF account after leaving job also taxable in the hands of an individual?

Yes, any accrued interest on EPF or VPF after leaving employment is taxable in the hands of employee till the time accumulated balance along with interest is transferred to the provident fund with the new employer or actually withdrawn by the employee.

In case where the employer is an exempted establishment (which has a private provident fund trust), can the employee still make VPF?

Yes, VPF contribution can be made by an employee even where the employer is an exempted establishment (which has a private provident fund trust) - subject to trust rules and employer policy if any.

If the EPF and VPF accounts are managed by an exempted establishment (which has a private provident fund trust), is there any limit on the tax-exempt interest that can be received by an individual?

Interest received on EPF and VPF from an exempted establishment in excess of rate notified by the Central Government (9.5%) is taxable in the hands of employee. The interest rate notified by the Central Government for income-tax exemption is separate from interest rate notified by the EPFO for credit of interest to employees' EPF account.

On 27 March 2020, the Government has notified that an employee may claim COVID-19 related non-refundable advance from the provident fund account to the extent of basic wages and dearness allowance for 3 months or up to 75% of amount standing to employee's credit in the provident fund, whichever is less. When calculating 75% of accumulated balance, will both EPF and VPF be taken into consideration?

Yes, while calculating limit of 75% of accumulated balance, both EPF and VPF will be taken into consideration.

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Voluntary provident fund: Investing, contribution, interest rate and other things to know

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ET CONTRIBUTORSLast Updated: May 28, 2020, 09:42:00 AM IST

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If you are planning to invest in the Voluntary Provident Fund (VPF), here are the answers of the some the commonly asked questions about it.

invest18-getty — According to experts, rules of EPF and VPF are same.

Employees Provident Fund Organisation (EPFO) in its FAQs on reduction of Employees' Provident Fund (EPF) contribution to 10% for both employers and employees for May, June and July, 2020 has clarified that employees can also contribute at higher rate i.e. 12%.

The higher contribution by an employee will go into Voluntary Provident Fund (VPF). Puneet Gupta, Director, People Advisory Services, EY India answers some of the common queries on VPF.

Can an employee make VPF contribution? Is there a limit on the amount of VPF contribution that an employee can make?
As per Section 6 of the Provident Fund Act, if an employee so desires, he/she can make provident fund contribution in excess of the statutory rate subject to the condition that the employer shall not be under an obligation to pay any contribution over and above its contribution payable under the law.Thus, an employee can make VPF contribution at any time while he/she is a contributory member of Employees' Provident Fund (EPF). There is no limit on the amount of VPF contribution that an employee may make i.e. total of EPF and VPF contribution maybe 100% of monthly pay.
Can an employer make VPF contribution for its employees? Is there a limit on the amount of VPF contribution that an employer can make for its employees?
Yes, although there is no obligation on the employer, the employer can also make VPF contribution for its employees. There is no limit on the amount of VPF contribution that an employer may make i.e. total of EPF and VPF contribution may be 100% of monthly pay.Where VPF contribution by the employer is allocated out of employee's CTC, employee agreement for contribution at a higher rate should be obtained.
What are the tax implications on VPF contribution by the employee and the employer?
Under Section 80C of the Income-tax Act, total of EPF and VPF contribution by the employee is eligible for tax deduction in the hands of employee subject to overall limit of Rs 1.5 lakh per annum.Under Rule 6 of Part A of Fourth Schedule-Part A of the Income-tax Act, total of EPF and VPF contribution by the employer in excess of 12% of salary is taxable in the hands of employee.Also, where the aggregate of employer's contribution to EPF, NPS (National Pension System) and SAF (Superannuation Fund) exceeds INR 7.5 lakh in a financial year, the excess along with accrued interest thereon is taxable in the hands of employee.
What is required to be done for an employee to avail VPF option?
The option for VPF contribution can be availed by an employee by informing his/her employer in a manner prescribed by the employer. On receiving VPF contribution request from an employee, the employer will deduct VPF contribution from the employee's salary and deposit in the provident fund account of the employee.
How is VPF contribution reflected in provident fund passbook of an employee? Will an employee receive interest at the notified rate on the VPF?
The VPF contribution will be reflected in the same EPF account. No additional account will be opened for the VPF contribution. The EPF passbook will show the statutory contribution by the individual clubbed with VPF contribution made by the individual and employer's contribution.Interest on VPF will be the same as the notified interest rate for EPF.
When can VPF be withdrawn by an employee?
VPF is subject to same withdrawal rules as EPF. Both VPF and EPF can be withdrawn under following circumstances:a. On retirement from services after attaining the age of 55 yearsb. On retirement on account of permanent and total incapacity to workc. Immediately before migration from India for permanent settlement abroad or for taking employment abroadd. On termination of service in case of mass or individual retrenchmente. On termination of service under a voluntary retirement schemef. On ceasing to be an employee in any establishment to which the Provident Fund applies provided that he/she has not been employed in any other establishment to which the Provident Fund Act applies for continuous period of not less than 2 months immediately preceding the date on which he / she makes application for withdrawal.In addition, an employee may claim partial withdrawal or advance as per prescribed rules under specific circumstances, for instance, marriage, education, purchasing a house etc. The member can also claim an advance in the event of being unemployed for a month for up to 75% of the amount in his/her EPF account which will include VPF contribution.
Can VPF be transferred to a new employer on change in employment? If it can be transferred, is it mandatory for an employee to continue VPF contribution with the new employer as well?
Yes, as both EPF and VPF are contributed to the same EPF account, therefore, both can be transferred to the new employer on change in employment.It is not mandatory for an employee to continue VPF contribution with the new employer. VPF contribution can be initiated and stopped at any time subject to employer's policy if any.
Are withdrawal rules same for EPF (Employees' Provident Fund) and VPF? If an employee closes his / her EPF account, provided conditions are met, would the VPF account also close automatically?
Yes, withdrawal rules for EPF and VPF are same. As both EPF and VPF are clubbed, if EPF account is closed under specific circumstances listed in response to question 6 above, VPF is closed automatically.
Is withdrawal of VPF, provided conditions are met, taxable in the hands of employee?
Tax implications on withdrawal of EPF and VPF are same. EPF and VPF withdrawals are not taxable under the following circumstances:a. If employee has rendered continued service for 5 years or more; orb. If the employment has been terminated by reason of ill-health or by the contraction or discontinuance of the employer's business or other cause beyond the control of the employee; orc. If, on the cessation of his employment, the employee obtains employment with new employer, the total accumulated balance is transferred to Provident Fund maintained by the new employer; ord. If the total accumulated balance is transferred to NPS Account.Where the amount is transferred to new employer, the period of service with previous employer is included to calculate continuous service of 5 years or more.
Will the accrued interest in VPF account after leaving job also taxable in the hands of an individual?
Yes, any accrued interest on EPF or VPF after leaving employment is taxable in the hands of employee till the time accumulated balance along with interest is transferred to the provident fund with the new employer or actually withdrawn by the employee.
In case where the employer is an exempted establishment (which has a private provident fund trust), can the employee still make VPF?
Yes, VPF contribution can be made by an employee even where the employer is an exempted establishment (which has a private provident fund trust) - subject to trust rules and employer policy if any.
If the EPF and VPF accounts are managed by an exempted establishment (which has a private provident fund trust), is there any limit on the tax-exempt interest that can be received by an individual?
Interest received on EPF and VPF from an exempted establishment in excess of rate notified by the Central Government (9.5%) is taxable in the hands of employee.The interest rate notified by the Central Government for income-tax exemption is separate from interest rate notified by the EPFO for credit of interest to employees' EPF account.
On 27 March 2020, the Government has notified that an employee may claim COVID-19 related non-refundable advance from the provident fund account to the extent of basic wages and dearness allowance for 3 months or up to 75% of amount standing to employee's credit in the provident fund, whichever is less. When calculating 75% of accumulated balance, will both EPF and VPF be taken into consideration?
Yes, while calculating limit of 75% of accumulated balance, both EPF and VPF will be taken into consideration.

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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)