Voluntary contribution can help you grow your retirement corpus | #retirement | #elderly | #seniors
Provident Fund (PF) contribution is mandatory for all Employees’ Provident Fund (EPF) and PF account holders. As per the Employees’ Provident Fund Organisation (EPFO) norms, an employee is bound to contribute 12 per cent of its basic salary into one’s PF or EPF account. Similarly, the EPFO rule says that the recruiter will also contribute 12 per cent of the employees’ basic salary in the EPF or PF account of the employee. However, if an employee wants, he or she can add more into its EPF or PF account by opting Voluntary Provident Fund (VPF). This helps the employee create more money in one’s PF account with the passé of time.
Speaking on how VPF helps an EPF account holder Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, “PF interest rate of 8.5 per cent (which is available in VPF) is highest among all small saving schemes. The EPFO allows an EPF or PF account holder to opt for the VPF and invest beyond 12 per cent of its basic salary in one’s provident fund account. However, for this VPF contribution made by the employee, the employer will not contribute any additional amount. The employer will only contribute 12 per cent of the employee’s basic salary, which is mandatory for both employee and the employer.”
Jhaveri said that in VPF, the employee will get all income tax benefits that are available for its PF contribution. However, Jhaveri said that after investment VPF will be part of one’s PF account and there will be no separate withdrawal rule for PF/EPF and VPF. So, one should make sure than the money he or she is investing is meant for one’ post-retirement fund. He said that VPF contribution helps PF balance grow at a faster rate as more interest yield with compounding benefit in the long-term will lead to higher retirement fund in one’s PF account.
On how one can start VPF contribution SEBI registered tax and investment expert Jitendra Solanki said, “One can opt for the VPF at the time of joining by asking the recruiter to deduct VPF from its monthly salary. In case, the employee fails to do this at the time of joining, it can ask for VPF deduction in the month of April from its recruiter while making tax and investment declaration.” Jhaveri also said that VPF is much better than tax saving small saving schemes like PPF, Post Office savings, etc as PF interest rate will always remain higher than other government-backed schemes.