Salaried Savings · AY 2026-27

Voluntary Provident Fund (VPF) —
8.25%, With an 80C Catch

The VPF interest rate, how much extra you can contribute, the Section 80C benefit and its regime catch, the Rs 2.5 lakh interest-taxability threshold, and the 5-year withdrawal rule — all for FY 2025-26.

Updated for FY 2025-26 CA Reviewed Salaried Employees

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8.25%VPF / EPF rate

Rs 1.5L80C cap (old regime)

Rs 2.5Ltax-free interest cap

5 yrsfor tax-free exit

Quick Answer

VPF is an optional extra contribution a salaried employee makes to their own EPF account, over and above the mandatory 12% of basic + DA — up to 100% of basic + DA. It earns the same rate as EPF: 8.25% p.a. for FY 2025-26. Contributions qualify for Section 80C (up to Rs 1.5 lakh, old regime only). Interest stays tax-free while your total employee EPF + VPF contribution is within Rs 2.5 lakh a year; above that, interest on the excess is taxable. Full withdrawal is tax-free after 5 years of continuous service.

Interest 8.25%

80C Old only

Tax-free interest Rs 2.5L

Employer match None

VPF is not a separate account

VPF has no separate registration, number or portal. It flows into your existing EPF account under the same UAN, earns the EPFO-declared rate, and follows EPF withdrawal and transfer rules. You start it by asking your employer's payroll to deduct extra — you cannot pay in directly.

The essentials

VPF — Key Features at a Glance

Feature	Details
Who can invest	Any salaried EPFO member with an active EPF / UAN account
Minimum contribution	Any amount above the mandatory 12% of basic + DA
Maximum contribution	Up to 100% of basic salary + DA
Interest rate (FY 2025-26)	8.25% p.a. — same as EPF, declared annually by EPFO
Employer matching	No — employer matches only the mandatory 12%
Account	Same EPF account & UAN — no separate VPF number
80C benefit	Yes — within Rs 1.5L, old regime only
Liquidity	EPF withdrawal rules apply; tax-free exit needs 5 years' service

Interest rate 8.25% for FY 2024-25 and FY 2025-26 (EPFO). Rate is reviewed and declared each year.

The full picture

Tax Treatment of VPF

VPF is broadly EEE (exempt-exempt-exempt), but two thresholds — the Rs 1.5 lakh 80C cap and the Rs 2.5 lakh interest-taxability limit — decide how much benefit you actually get.

Stage	Treatment	Key condition
Contribution (80C)	Deductible	Within Rs 1.5L combined 80C cap — old regime only
Interest earned	Tax-free	If employee EPF + VPF contribution ≤ Rs 2.5L/year
Interest on excess contribution	Taxable	On contribution above Rs 2.5L/year (Rs 5L if no employer contribution) u/s 10(11)/(12)
Withdrawal after 5 yrs service	Tax-free	Continuous service of 5+ years u/s 10(12)
Withdrawal before 5 yrs service	Taxable	80C reversed + interest taxed; TDS u/s 192A @10% if > Rs 50,000
Transfer of PF on job change	Not taxable	Transfer to new employer's recognised PF is exempt

The Rs 2.5 lakh interest-taxability threshold applies in BOTH the old and new regimes — it is not regime-dependent.

Budget 2021 interest-taxability trap

Since FY 2021-22, interest on your own EPF + VPF contribution above Rs 2.5 lakh a year is taxable as income from other sources. EPFO keeps two sub-accounts (taxable and non-taxable) and TDS u/s 194A applies at 10% once the taxable interest crosses Rs 5,000. If your mandatory 12% EPF already nears Rs 2.5 lakh, extra VPF will only generate taxable interest.

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The catch

VPF 80C Works Only in the Old Regime

The new tax regime is the default and disallows Section 80C, so VPF contributions give no deduction there. The account still earns 8.25% and interest stays tax-free within the Rs 2.5 lakh threshold, but the tax-saving reason to prefer VPF largely disappears under the new regime.

Old

Old regime — VPF gets 80C

VPF + EPF employee share deductible within Rs 1.5L 80C
Best for 30% / 20% slab savers
Effective return boosted by tax saved
Standard deduction Rs 50,000 (salaried)

New

New regime (default) — no 80C

VPF gives no deduction — 80C disallowed
Interest still tax-free up to Rs 2.5L contribution
Lower slab rates + Rs 75,000 standard deduction
Rebate u/s 87A up to Rs 12L taxable income

Where it fits

VPF vs PPF vs NPS

VPF is a forced-savings, guaranteed-return vehicle for the salaried. Compare it with PPF and NPS before you decide where the next rupee goes.

Feature	VPF	NPS	PPF
Who can invest	Salaried EPFO members	Anyone 18–70	Anyone
Return	8.25% guaranteed	Market ~9–11% eq.	7.1% guaranteed
80C benefit	Yes (old regime)	Yes u/s 80CCD(1) (old)	Yes (old regime)
Extra deduction	None	Rs 50k u/s 80CCD(1B)	None
Lock-in	Retirement / 5 yrs for tax-free exit	Till age 60	15 years (part from yr 7)
Maturity	100% tax-free after 5 yrs service	60% tax-free lump sum; 40% annuity (taxable)	100% tax-free
Interest taxability	Tax-free up to Rs 2.5L contribution	Market-linked	Always tax-free

NPS returns are market-linked and not guaranteed. Small-savings / PPF rate reviewed quarterly.

VPF suits you if

You are salaried, old regime, in the 20–30% slab
Your EPF + VPF stays within Rs 2.5L/year
You want risk-free, government-backed, tax-free returns
You already have EPF and want to top it up easily

Reconsider VPF if

You are on the new regime — no 80C benefit
Your 12% EPF already nears Rs 2.5L (interest turns taxable)
You want higher growth — ELSS or NPS equity may beat it
You need liquidity before 5 years of service

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Step by step

How to Start VPF

Ask payrollWritten VPF request to employer HR / payroll

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Set the amountExtra % of basic + DA beyond the mandatory 12%

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Salary deductionEmployer remits it to your existing EPF / UAN

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Track in passbookShows as extra employee contribution on EPFO portal

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Claim 80COld regime — within Rs 1.5L in your ITR

Active UAN / EPF membership
Written VPF request to employer payroll
Extra amount / % of basic + DA fixed
EPF + VPF kept within Rs 2.5L to keep interest tax-free
Old regime selected to claim 80C
PF passbook / EPFO member portal access
5 years' service before withdrawing for tax-free exit
Form 12BB submitted to reduce salary TDS

You cannot pay VPF directly

VPF must flow through employer payroll — you cannot deposit into it yourself the way you fund PPF. Most employers accept VPF changes at the start of the financial year; some allow mid-year changes. Once set, VPF is deducted from salary along with your regular EPF.

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Government sourcesEPF interest rate & scheme: epfindia.gov.in · Interest & withdrawal tax: incometax.gov.in · Interest taxability above Rs 2.5L: Section 10(11)/(12), Finance Act 2021 · TDS on early withdrawal: Section 192A, Income-tax Act 1961

VPF — Frequently Asked Questions

Basics

What is Voluntary Provident Fund (VPF)?

VPF is an optional extra contribution a salaried employee makes to their own EPF account, over and above the mandatory 12% of basic salary plus dearness allowance. You can contribute up to 100% of your basic + DA. It goes into your existing EPF account under the same UAN, earns the same interest rate as EPF, and follows EPF withdrawal and transfer rules. There is no separate VPF account or registration.

What is the VPF interest rate for 2025-26?

VPF earns the same rate as EPF — 8.25% per annum for FY 2025-26 (also 8.25% for FY 2024-25). The rate is declared each year by EPFO and ratified by the government. Interest is calculated monthly on the running balance and credited to the account once a year. VPF returns are guaranteed and government-backed, unlike market-linked options such as NPS or ELSS.

Does my employer match VPF contributions?

No. The employer matches only the mandatory 12% EPF contribution. Any VPF you contribute on top is entirely your own money — the employer does not add to it. VPF simply increases the employee share going into your EPF account each month.

How much can I contribute to VPF?

You can contribute any amount above the mandatory 12%, up to 100% of your basic salary plus dearness allowance. There is no statutory cap on the VPF amount itself, but remember two limits: the 80C deduction is capped at Rs 1.5 lakh, and interest becomes taxable once your total EPF + VPF employee contribution crosses Rs 2.5 lakh in a year.

Tax & 80C

Is VPF contribution eligible for Section 80C?

Yes, under the old tax regime. Your VPF contribution, together with the mandatory EPF employee share, qualifies for a Section 80C deduction within the overall Rs 1.5 lakh ceiling. If your EPF + VPF already fills the Rs 1.5 lakh limit, additional VPF gives no further 80C benefit. Under the new (default) regime, 80C is not available, so VPF gives no deduction there.

Can I claim VPF under 80C in the new tax regime?

No. Section 80C, including EPF and VPF, is available only under the old tax regime. If you have opted for the new regime, VPF contributions do not reduce your taxable income. The account still earns 8.25% and interest stays tax-free within the Rs 2.5 lakh contribution threshold, but the tax-saving reason to prefer VPF largely disappears in the new regime.

Is VPF interest taxable?

Interest on your own EPF + VPF contribution is tax-free as long as your total employee contribution stays within Rs 2.5 lakh in a financial year. Above that, interest on the excess contribution is taxable as income from other sources (the threshold is Rs 5 lakh for government employees where there is no employer contribution). This rule, introduced in Budget 2021, applies regardless of which tax regime you choose.

Is TDS deducted on taxable VPF interest?

Yes. Where interest on contributions above the Rs 2.5 lakh threshold becomes taxable, TDS is deducted under Section 194A at 10% once the taxable interest in the year exceeds Rs 5,000. EPFO maintains two sub-accounts — a non-taxable account for contributions within the threshold and a taxable account for the excess — and computes interest separately.

Who benefits most from VPF?

VPF suits salaried employees in the old regime, especially at the 20% or 30% slab, whose combined EPF + VPF contribution stays within Rs 2.5 lakh a year — they get a guaranteed, tax-free 8.25% plus the 80C deduction. It is less attractive for new-regime taxpayers (no 80C), for high earners whose 12% EPF already nears Rs 2.5 lakh (extra VPF interest becomes taxable), and for younger investors seeking higher growth via equity.

Withdrawal

When is VPF withdrawal tax-free?

A full VPF/EPF withdrawal is completely tax-free if you have completed 5 years of continuous service (including service transferred from a previous employer). It is also exempt if service was cut short due to ill health, the employer closing down, or other reasons beyond your control. Withdrawal is normally allowed on retirement, at 58, or after being unemployed for 2 or more months.

What is the tax if I withdraw VPF before 5 years?

If you withdraw before completing 5 years of continuous service, the 80C deductions claimed on your contributions are reversed and added back to income, and the interest earned becomes taxable. TDS is deducted under Section 192A at 10% (20% if you have not furnished PAN) where the withdrawal amount exceeds Rs 50,000. Withdrawals below Rs 50,000, or with Form 15G/15H where eligible, may avoid TDS.

Can I make partial withdrawals from VPF?

Yes, VPF follows EPF partial-withdrawal rules. Advances are allowed for specific purposes — house purchase or construction, medical treatment, marriage or higher education, and home-loan repayment — each with its own minimum-service condition. Because VPF sits in the same EPF account, any advance is drawn from the combined balance.

Is transferring my PF (with VPF) to a new employer taxable?

No. Transferring your EPF balance, including the VPF portion, to your new employer's recognised provident fund on a job change is not a taxable event. The service period also carries over, which helps you reach the 5-year mark for tax-free withdrawal. You transfer online through the EPFO portal using your UAN.

Practical

How do I start VPF?

Submit a written request to your employer's HR or payroll department specifying the extra amount or percentage of basic + DA you want to contribute beyond the mandatory 12%. Payroll deducts it from your salary and remits it to your existing EPF account under the same UAN. You cannot pay into VPF directly. Most employers accept VPF requests at the start of the financial year; some allow mid-year changes.

Can I stop or reduce my VPF contribution later?

VPF is voluntary, but the ability to stop or change it mid-year depends on your employer's payroll policy. Many organisations allow changes only at the start of the financial year, so you may need to wait for the next cycle. Once contributed, the VPF amount stays in your EPF account and continues to earn interest until withdrawal.

VPF or PPF — which is better?

VPF currently pays more (8.25% vs PPF's 7.1%) and is very convenient for the salaried since it runs through payroll, but it is available only to EPFO members and its interest can become taxable above the Rs 2.5 lakh contribution threshold. PPF is open to everyone, always tax-free, and useful once VPF interest starts getting taxed or if you are self-employed. Many people use VPF up to the threshold and PPF beyond it.

Done-for-you

Related TaxClue Services

Income Tax Return FilingCA-assisted ITR claiming VPF, 80C and every Chapter VI-A deduction.Explore →EPF Withdrawal GuideWhen PF/VPF withdrawal is tax-free and how the 5-year rule works.Explore →PF Transfer OnlineMove your EPF + VPF to a new employer without tax, keeping service intact.Explore →Section 80C — Full ListHow VPF fits the Rs 1.5 lakh 80C ceiling alongside PPF, ELSS and more.Explore →

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