look news india
New Delhi. The government is considering increasing the existing limit for tax-free contributions to the Voluntary Provident Fund (VPF) under the Employees' Provident Fund Organization (EPFO). Currently, interest received on contributions of more than Rs 2.5 lakh in VPF is taxable. The initiative aims to help low- and middle-income people increase their savings and generate more money for retirement.
According to the Economic Times report, sources familiar with the matter have said that the Labor Ministry is reviewing the proposal and may discuss it with the Finance Ministry during the upcoming budget deliberations for FY26.
What is Voluntary Provident Fund (VPF)?
Voluntary Provident Fund (VPF) is an optional scheme to which salaried employees can contribute in addition to the mandatory EPF to increase their savings. In this, interest is given on the contribution at the same rate as EPF, which is compounded on annual basis. The maximum contribution to VPF can be up to 100% of basic salary and dearness allowance, which accrues at the same interest rate as EPF. However, this amount withdrawn before completing the minimum tenure of five years may be subject to tax.
Consideration of change in the limit of Rs 2.5 lakh
The limit on getting tax-free interest of more than Rs 2.5 lakh in VPF at present was introduced in Budget 2022. The aim was to prevent high-income group employees from earning more tax-free interest using the scheme than bank or fixed deposits. Now the government is considering increasing this limit, so that middle income group people can save more.
Fund of Rs 20 lakh crore under EPFO
EPFO has a corpus of over Rs 20 lakh crore and has over 7 crore monthly contributors and over 75 lakh pensioners. Employees can contribute up to a maximum of 100% to VPF, which is based on their basic salary and dearness allowance. The interest received in this is similar to EPF, on which interest has been given at the rate of more than 8% for a long time.
Interest Rate and Savings Calculation
The interest rate on EPF is 8.10% for FY 2022, 8.15% for FY 2023 and 8.25% for FY 2024. By investing Rs 2.5 lakh per year in EPFO and VPF, you can accumulate around Rs 3.3 crore in 30 years at an annual interest rate of 8.25%.