Provident fund (PF) and Voluntary Contributions to Provident Fund (VCPF)

Salaried Employee always worries about their future after retirement. If you are a salaried employee you too expect to save for retirement and Provident Fund is the most important tool to secure your retirement life. Provident Fund (PF) (also known as Employees Provident Fund, or EPF) is the lowest risk investment avenue of which every salaried employee must be aware of as PF is compulsory investment for all salaried people who work for a company having 20 or more employees. PF/EPF is a retirement benefit scheme that is available to salaried employees and it carries lowest risk as it is backed by the government. PF/EPF include contributions both on the part of the employer as well as that of the employee. In PF each month a stipulated amount (usually between 8% and 12% of your Basic Pay) is deducted from your salary and contributed towards the fund. In addition, the company/employer also contributes an equal amount to the fund for your retirement. As you invest you too expect return with interest which should be higher as the objective of investment is only to earn interest. The Central Government every year in March / April fix the rate of interest that you earn on your PF investment and this rate of interest changes every year, and the best part is that usually this rate is higher than the prevailing market rates. The current rate of Interest on PF i.e, for Financial Year 2010-11 is 9.5%. At the time of retirement, you get a sizeable lump-sum amount to lead life peacefully even after retirement. Contribution to PF by you also gets Income Tax Benefit. Your contribution towards PF gets deducted from your salary and no tax is paid on it as amount contributed towards PF is considered as a part of investments u/s 80C of the Income Tax Act, 1961. Moreover, the amount that your company has invested towards PF on your behalf and the interest earned on these amounts is totally Tax-free. That means, no tax you have to pay on Provident money withdrawn at the time of retirement. Now, If you’re interested to invest more in PF as it has maximum benefits you desire and carries less risk too, You can contribute a larger amount of your salary towards the provident fund through the Voluntary Contributions to Provident Fund (VPF) scheme. You can contribute more than the PF ceiling that has been mandated by the government. This additional voluntary contribution enjoys all the benefits of PF, except that the company doesn’t contribute an equal amount. But still, the interest rate is equal to the rate of interest for PF, and the withdrawal on retirement is tax-free.

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