EPF vs VPF: Rs 25,000 base salary, how much additional amount can you generate through voluntary provident fund?

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EPF vs VPF: Rs 25,000 base salary, how much additional amount can you generate through voluntary provident fund?

Employee Provident Fund (EPF) and Voluntary Provident Fund (VPF) are saving tools that help salaried individuals build retirement funds of interest. Although they have similar purposes, they have unique characteristics. Let's explore the differences between EPF and VPF to better understand them. Also, let's find out how much additional amount can be generated through VPF through a base salary of Rs 25,000.

What is Employee Provident Fund (EPF)?

Employee Provident Fund (EPF) is a retirement savings plan managed by EPFO (Employee Provident Fund Organization). Both employees and employers contribute to this. Employees contribute 12% of their base salary, and the employer matches this amount. Part of the donation from the employer is used for employee pension plans, and the rest will be used for EPF accounts to help employees save money for retirement.

What is Volunteer Provident Fund (VPF)?

Volunteer Provident Fund (VPF) is an extension of the EPF that allows employees to save more retirement. In contrast to EPF, employees can contribute up to 100% of base salary and honorary allowances to VPF, and employers do not contribute to this program. This is the way employees volunteer to save more for the future.

VPF vs EPF: What's the difference?

The main difference between VPF and EPF is their tax impact, participation requirements, contributors and contribution restrictions. For tax purposes, donations of EPF or VPF exceeding Rs 2.5 lakh shall be taxed on the interest earned.

Although EPF participation is mandatory, VPF is voluntary, allowing employees to save more retirement. EPF involves the contribution of employees and employers, while VPF is funded only by employees. Additionally, the EPF has a contribution limit of 12%, while the VPF allows contributions up to 100% of the base salary and precious allowances.