Voluntary Provident Fund (VPF) — Interest Rate, Tax Benefits & Withdrawal Rules

Updated: 3 June 2026 | EPF & MP Act, 1952 | EPF interest rate 2024-25: 8.15% p.a.

VPF (Voluntary Provident Fund) is an optional additional contribution by a salaried employee to their EPF (Employees' Provident Fund) account, beyond the mandatory 12% of basic salary + DA. The employee can contribute up to 100% of basic salary + DA. VPF earns the same interest rate as EPF (currently 8.15% p.a. for 2024-25, declared annually by the government). Contributions qualify for Section 80C deduction (old regime) subject to the ₹1.5L combined limit. Interest is tax-free if total employee EPF+VPF contribution stays within ₹2.5 lakh per year.

8.15%

VPF interest rate for 2024-25 — same as EPF, guaranteed by government
Interest is tax-free if your total EPF + VPF contribution stays within ₹2.5 lakh per year. Contributions also qualify for 80C deduction under old regime.

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Budget 2021 change: Interest on EPF/VPF contributions exceeding ₹2.5 lakh per year (by the employee) is now taxable as income from other sources. High-salary employees contributing large VPF amounts must track the ₹2.5L threshold to avoid unexpected tax on interest.

VPF — Key Features at a Glance

Feature	Details
Who can invest	Any salaried employee who is a member of EPFO (has an active EPF/UAN account)
Minimum contribution	Any amount above the mandatory 12% of basic + DA (even ₹500/month extra)
Maximum contribution	Up to 100% of basic salary + Dearness Allowance
Interest rate (2024-25)	8.15% p.a. — same as EPF; declared by EPFO annually; compounded annually
Employer matching	No — employer does not match VPF contributions (employer matches only mandatory 12%)
Account	Same EPF account (UAN); no separate VPF account number
Liquidity	Lower than NPS/ELSS; withdrawals subject to EPF rules and purpose restrictions
How to start	Submit request to employer HR; deducted from salary and remitted to EPF account

Tax Treatment of VPF — Full Picture

OLD REGIME ONLY

80C Deduction on VPF Contribution

VPF contributions (along with EPF employee contribution) qualify for Section 80C deduction up to ₹1,50,000 per year under the old tax regime. If your combined EPF + VPF contribution already exceeds ₹1.5L, the excess does not give additional 80C benefit. Not available under the new tax regime.

BOTH REGIMES

Interest Tax-free up to ₹2.5 Lakh Contribution Threshold

The interest earned on VPF and EPF is tax-free as long as your total employee contribution (EPF + VPF combined) does not exceed ₹2.5 lakh in a financial year. Above this threshold, interest on the excess contribution is taxable. This rule (introduced in Budget 2021) applies regardless of which tax regime you choose. Government employees have a higher threshold of ₹5 lakh.

WITHDRAWAL

Withdrawal Tax: 5-Year Rule

If you withdraw VPF/EPF (including VPF balance) after completing 5 years of continuous service, the withdrawal is completely tax-free. If you withdraw before 5 years: the 80C deduction claimed on contributions is reversed and included in income, and the interest earned is taxable. Premature withdrawal before 5 years also attracts 10% TDS (if balance > ₹50,000).

VPF vs NPS vs PPF — Comparison

Feature	VPF	NPS	PPF
Who can invest	Salaried (EPFO members) only	Anyone (18-70 years)	Anyone
Returns	8.15% p.a. guaranteed	Market-linked (equity option ~10-12% historical)	7.1% p.a. guaranteed
Returns type	Guaranteed	Market-linked	Guaranteed
80C benefit	Yes (old regime)	Yes via 80CCD(1) (old regime)	Yes (old regime)
Extra deduction	No	₹50K extra via 80CCD(1B)	No
Lock-in	Until retirement/5 yrs for tax-free exit	Until age 60 (partial exits allowed)	15 years (partial from yr 7)
Withdrawal at maturity	100% tax-free (after 5 yrs service)	60% lump sum (40% must buy annuity; lump sum tax-free; annuity taxable)	100% tax-free
Annuity requirement	No	Yes — 40% must purchase annuity	No
Interest taxability	Tax-free up to ₹2.5L contribution	Not applicable (market-linked)	Always tax-free

Planning tip: For salaried employees in the old regime at 30% slab with basic salary over ₹2.1L/month (annual basic > ₹25L), the mandatory 12% EPF itself may approach ₹2.5L — meaning any VPF contribution will generate taxable interest. In such cases, NPS 80CCD(1B) (extra ₹50K deduction) or PPF may offer better after-tax returns. For employees with lower basic salary (e.g., ₹40,000-80,000/month), VPF within the ₹2.5L threshold remains one of the best risk-free, tax-efficient savings options available.

Frequently Asked Questions

Is VPF interest taxable after the Budget 2021 amendment?

Yes, partially. Budget 2021 introduced a threshold above which EPF/VPF interest becomes taxable. If an employee's own contribution to EPF + VPF exceeds ₹2.5 lakh in a financial year, the interest earned on the excess amount (above ₹2.5L) is taxable as income from other sources. For government employees (where there is no employer contribution to EPF), the threshold is higher at ₹5 lakh. The EPFO maintains two sub-accounts — a taxable PF account (for contributions above the threshold) and a non-taxable PF account (for contributions within the threshold). TDS is deducted if taxable interest exceeds ₹40,000 (₹50,000 for senior citizens). Most salaried employees contributing up to ₹2.5L per year are not affected.

What are the VPF withdrawal rules and tax implications?

VPF withdrawals follow the same rules as EPF. Full withdrawal (including VPF balance) is allowed on retirement, at age 58, or if unemployed for 2+ months. Partial withdrawal is allowed for specific purposes: house purchase/construction (5 years service), medical emergency (any time), marriage or education (7 years service), and home loan repayment (10 years service). Tax treatment on withdrawal: if the employee has completed 5 years of continuous service, the entire withdrawal (principal + interest) is tax-free. If withdrawn before 5 years, both the employer's contribution and interest are taxable. VPF (employee's own contribution + interest) withdrawn before 5 years: the deduction claimed under 80C is reversed, and interest is taxable.

Who benefits most from VPF contributions?

VPF is most beneficial for salaried employees in the 30% tax bracket (old regime) whose combined EPF + VPF contribution stays within ₹2.5L per year. At 30% slab + 4% cess, the effective after-tax return on VPF at 8.15% is approximately 8.15% (interest is tax-free within threshold) vs a taxable FD at 7.5% yielding ~5.2% after tax. VPF is less suitable for: employees already contributing ₹2.5L to EPF (interest will be taxable), employees under the new tax regime (no 80C benefit; the guaranteed return advantage of VPF may still be valid), and younger employees seeking higher growth who may prefer ELSS or NPS equity. VPF is essentially a forced savings vehicle with government-backed returns.

Can I claim VPF contribution as 80C deduction in the new tax regime?

No. Section 80C deductions, including EPF and VPF contributions, are available exclusively under the old tax regime. If you have opted for the new tax regime, your VPF contributions do not reduce your taxable income. The new regime does not allow any 80C/80CCC/80CCD(1) deductions. However, the VPF account itself continues to earn interest at the declared EPF rate (8.15%), and if your total EPF+VPF contribution is within ₹2.5L per year, the interest remains tax-free even in the new regime (the ₹2.5L interest taxability threshold is not regime-dependent). The loss of 80C benefit is the primary disadvantage of VPF for new-regime taxpayers.

How do I start contributing to VPF?

VPF does not have a separate registration with EPFO. To start VPF contributions, submit a written request to your employer's HR or payroll department specifying the additional amount or percentage of basic salary you wish to contribute beyond the mandatory 12%. The employer deducts the VPF amount from your salary and remits it to your existing EPF account (same UAN and PF account number). Most organisations accept VPF requests at the beginning of the financial year; some allow mid-year changes. You cannot directly contribute to VPF — it must flow through the employer payroll. The VPF contribution will appear in your PF passbook (accessible on EPFO member portal or UMANG app) as additional employee contribution.

80C Deductions EPF Withdrawal NPS Guide PPF Account Old vs New Tax Regime

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