VPF vs PPF: Meaning, Eligibility and Key Differences

The Public Provident Fund (PPF) and Voluntary Provident Fund (VPF) present two appealing savings choices in India. While both options guarantee decent returns and safeguard your invested capital, there are significant differences between them. Understanding the difference between PPF and VPF is crucial for making informed decisions regarding your retirement planning.

In this article, we will provide insights on VPF vs PPF by examining the difference between PPF and VPF. We will also explore the question of VPF or PPF which is better.

What Is VPF?

VPF is an extension of the Employees’ Provident Fund (EPF) in India. In eligible companies under the EPF scheme, workers contribute 12% of their salary and employers match this amount. These contributions are usually held until retirement or specific withdrawal conditions are met. Nevertheless, VPF allows employees to make additional voluntary contributions beyond the mandatory amounts. The terms and conditions are unaltered despite extra payments being made by employees. The funds deposited into the employee’s EPF account as VPF contributions attract interest at par with normal EPF payments.

Who Is Eligible For VPF?

To be eligible for the VPF, certain criteria must be met. Here are the key eligibility requirements:

You need to be employed in an organised sector, such as a company or establishment with a structured employment setup.
Your employer should have a workforce consisting of more than 20 individuals.
In certain cases, organisations may establish an Employees Provident Fund for all their employees, even if they don’t meet the minimum threshold of 20 employees.

Contributions And Maturity Period For VPF

Contributions to the VPF operate differently compared to the structure of PPF accounts. Unlike PPF accounts, there are no strict limits on how much you can contribute to VPF. In fact, employees can deposit up to 100% of their salary, including the dearness allowance and basic pay, each month without any hurdles. The VPF remains active until an employee retires or resigns, and it offers the convenience of transferring funds when switching jobs, a feature not found in PPF accounts.

Moreover, EPF accounts, which VPF is a part of, allow for premature withdrawals under certain circumstances. These include extended periods of unemployment, weddings (either the account holder’s or a dependent’s), loan repayments, and medical expenses. This flexibility in withdrawal conditions offers VPF account holders additional financial options, further setting VPF apart from PPF accounts.

What Is PPF?

PPF is a government-backed long-term savings scheme accessible to both self-employed individuals and employees in India. It not only offers tax-free maturity amounts but also provides tax deductions on contributions and allows for tax-free interest earnings. With a lock-in period of 15 years, the PPF allows participants to avail partial loans and withdrawals after a specific duration, thus providing a degree of flexibility in managing finances. This makes it an attractive option for those seeking stable, long-term savings while retaining the option for occasional financial flexibility.

Who Is Eligible For PPF?

Here are the essential eligibility criteria you need to know if you’re considering opening a PPF account:

Only individuals who hold Indian citizenship are eligible for PPF accounts.
Eligible individuals must reside within the territorial boundaries of India to qualify for opening a PPF account.
Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are excluded from the eligibility criteria for opening a PPF account in India.

Contributions And Maturity Period For PPF

The Public Provident Fund (PPF) stands out with its fixed maturity period of 15 years, a key difference from Voluntary Provident Funds. What’s interesting is that PPF subscribers have the flexibility to extend this lock-in period in blocks of 5 years after the initial tenure ends.

In terms of contributions, individuals can annually deposit a maximum of INR 1.5 Lakhs into a PPF account. This investment offers a dual advantage. It encourages saving while qualifying for tax exemption under Section 80C.

Moreover, both the withdrawn balance and the interest earned upon maturity enjoy tax exemptions, providing significant financial benefits to PPF account holders.

What Is The Difference Between PPF And VPF?

To gain a comprehensive understanding of the difference between PPF and VPF, take a look at the detailed comparison table provided below:

Parameters	PPF	VPF
Who is Eligible to Invest?	Open to all Indian residents, except Non-Resident Indians (NRIs).	All employed individuals, typically in organised sectors such as companies or establishments.
Duration of Minimum Investment	Fixed maturity period of 15 years.	Contributions continue until the individual resigns or retires from employment.
Employee Contributions Based on Salary + DA	Not applicable (N/A) as there are no employee contributions in PPF.	Employees can contribute up to 100% of their salary, including the basic pay and dearness allowance (DA).
Contributions from Employers	Employer contributions are not part of the PPF scheme.	There is no specific provision for employer contributions in VPF.
Tax Treatment upon Maturity	Returns upon maturity are also tax-free for PPF.	Returns upon maturity are completely tax-free for VPF.
Deductions for Tax Purposes	Contributions made to PPF are also eligible for tax deduction under Section 80C of the Income Tax Act, 1961.	Contributions made to VPF are eligible for tax deduction under Section 80C of the Income Tax Act, 1961.
Duration until Maturity	PPF account can be extended indefinitely in blocks of 5 years each after the initial 15-year maturity period.	VPF account can be transferred to a new employer if the individual changes jobs until retirement.
Maximum Borrowing Amount	PPF allows for loans of up to 50% of the account balance, which can be availed for up to 6 years.	Partial withdrawals are allowed from VPF accounts.

Conclusion

In conclusion, understanding the difference between PPF and VPF is essential for anyone planning their finances. While both offer tax benefits and long-term savings options, they serve different purposes. PPF provides stability with a fixed maturity period, tax-free returns, and flexibility for loans and partial withdrawals. VPF, on the other hand, offers more flexibility in contributions, allowing individuals to invest beyond the mandated amount from their salary. Deciding between VPF vs PPF depends on personal preferences and financial goals, ensuring a secure financial future regardless of one’s choice.