EPFO: Last week, more than 6 crore members of Employees’ Provident Fund Organization (EPFO) suffered a major setback. In fact, the retirement fund manager has decided to reduce the annual interest rate from 8.5 per cent to 8.1 per cent for the financial year 2021-22.
This is the lowest rate in EPF savings in 43 years, which has disappointed the subscribers. However, still it is most attractive, tax saving and it offers safe returns to the subscribers. EPF is exempt from tax on investment, collection and maturity.
Contribution to EPF will be taxed on interest above Rs 2.5 lakh from the financial year 2021-22.
How VPF Works
VPF or Voluntary Provident Fund is an extension of your EPF account. Your company i.e. the employer deducts 12 percent of your basic salary and deposits it in the EPF account. The company deposits 8.33% in EPS on its behalf and 3.67% in your EPF account. EPFO decides the rate of interest on this amount every year.
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The entire basic salary can be deposited in VPF
Apart from the mandatory deduction of 12 per cent, you can voluntarily opt for higher contribution to the EPF account, hence the name Voluntary Provident Fund (VPF).
You can choose to deposit your entire basic salary in VPF, rest of the rules remain the same. Like EPF, this additional investment offers the same interest and tax benefits, but the restrictions on premature and partial withdrawal will remain in place. So this year on VPF also you will get less return.
Why VPF Contribution should continue
Suresh Sadagopan, Founder, Ladder7 Financial Advisory, said, “It offers tax free, risk free returns, although some portion is taxable. The interest rate of 8.1 per cent is still too high. It cannot be compared with other means.”
It is more attractive as compared to PPF, 10 year government securities, long term debt mutual funds etc.
Investing in VPF is also quite easy. All of you should study the policies of your employer and inform your administration department and start investing. You do not have to open a new account for this. The amount or portion you select will be deducted from your salary for investment in the EPF account.
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