Provident Fund: Looking To Earn Maximum Interest On PF Balance? Here’s What To Do

Any employee can opt for VPF which offers a return of 8.10 per cent per annum. Also, note that you get a tax benefit under Section 80C of the Income-tax Act and the returns are also tax-free

An individual can reach retirement plan goals through smart and early investing. One of the many ways to achieve your desired retirement goals would be to increase contributions toward Provident Fund (PF). VPF or Voluntary Provident Fund is seen as one such investment avenue in the fixed income space.

VPF or Voluntary Provident Fund

In provident fund (PF) you have to mandatorily invest 12 per cent of your salary while contributions in VPF are voluntary. Under the scheme, employees can voluntarily contribute to their PF account after contributing 12 per cent as per the Employees’ Provident Fund (EPF) guideline.

Any employee can opt for VPF which offers a return of 8.10 per cent per annum. Also, note that you get a tax benefit under Section 80C of the Income-tax Act and the returns on maturity are also tax-free.

How can a salaried person invest more in PF?

VPF is an extension of the EPF, also known as PF. The contribution towards VPF is made from your salary which is purely voluntary. An EPF account holder can choose an additional provident fund contribution in one's EPF account by choosing a voluntary provident fund contribution. Kartik Jhaveri, director, Wealth Management at Transcend Capital explains in the Livemint publication report said the employee needs to check with HR at the time of joining. If you chose to opt for VPF after joining, then accordingly inform the company’s HR and accounts department about it before the beginning of a new financial year.

SEBI registered tax and investment expert Jitendra Solanki told the publication that ideally recruiter won't have any issue if an employee decides to opt for VPF because in this case, the employer won't have to pay an equal monthly contribution to its employee's VPF contribution.

But you need to ensure that the annual contribution along with monthly EPF and monthly VPF doesn't cross Rs 2.50 lakh per annum. It is because once when you cross the Rs 2.5 lakh annual contribution limit threshold, the return on the EPF contribution above Rs 2.5 lakh will be taxable, according to Solanki as stated in the report.

Steps to check EPF contributions

EPF contribution can be easily checked in your salary slip. The second way is to calculate the 12 per cent of your basic salary to know the mandatory EPF contribution.

How much you can invest via VPF

Once you are aware of the mandatory annual EPF contribution, simply deduct the same from Rs 2.5 lakh in order to know how much you can invest through VPF.

For instance, if you are earning Rs 50,000 per month as a basic salary, then the mandatory EPF contribution comes to Rs 6,000 per month (12 per cent of Rs 50,000). The annual EPF contribution is Rs 72,000 (Rs 6000X12). The maximum amount comes out to be Rs 1,78,000 (Rs 2.5 lakh subtracted from Rs 72,000) in a financial year that you can invest through VPF.