There is a widespread belief among employees that the Employees’ Provident Fund Organisation (EPFO) has fixed the maximum contribution to the provident fund at 12% of the basic pay plus dearness allowance (DA). This, however, is a misconception that is very common. Though the 12% is the compulsory contribution which is the standard rate, along with the option of making contributions on a voluntary basis through the Voluntary Provident Fund (VPF) scheme, employees can go above and beyond the mandatory limit. The employees can make VPF contributions up to 100% of their basic + DA, thus leading to a much bigger retirement corpus and there is no limit set on the personal contributions.
Standard EPF Versus Voluntary PF
The main difference between standard EPF and VPF is who wields the power regarding the contributions. In standard EPF, the employee and the employer share the burden equally, each paying 12% of the basic + DA. The fixed part is the contribution of the employer while the contribution of the employee is the only part that can go up under VPF. The interest rate and tax reliefs under VPF are the same as in case of standard EPF, including the eligibility for deductions under Section 80C of the Income Tax Act. This means that the employee can make his retirement savings grow faster without additional tax liability while the employer’s contribution remains unchanged.
EPF Contributions Over ₹15,000 Basic/DA
In the case of those employees whose basic salary along with DA is more than ₹15,000, the contributions to standard EPF are computed only for ₹15,000. The usual assumption is that contributions cannot go beyond this limit. But if employees refer to Paragraph 26(6) of the EPF Scheme, they can make a claim that their contributions be computed on the whole salary. For the calculation to be done on full salary, the employee has to get the approval of the regional EPF authorities (APFC/RPFC) first. Once the approval comes, the employee can claim the entire basic salary for PF calculations, thus further increasing retirement savings.
Why Voluntary Contributions Are A Good Choice
There are many advantages of choosing VPF or exceeding the normal 12%. To begin with, it gives the employees an opportunity to create a more substantial retirement fund throughout the years, since interest is compounded every year and that is a great help. Secondly, VPF is a low-risk investment that is guaranteed a return by the government; thus, it is a good option for the people who are very cautious with their investments. Lastly, the contribution is eligible for a tax deduction under Section 80C which means that employees can lower their taxes while still investing in their future. Therefore, it is a win-win situation for those who can live with a slightly smaller net pay for a long-term financial security plan.
Important Factors To Consider Prior To Electing VPF
On the one hand, VPF accepts larger contributions, but on the other hand, one needs to be aware that the employer’s contribution is still limited to 12%. To add more, employees who receive very high salaries need to get the EPF authority’s permission if they want to consider their entire salary for the PF calculation. Usually, voluntary contributions are the best option for employees who can afford to wait and are willing to plan for retirement in the long run, as PF cannot be liquidated quickly.
Also Read: DA Hike Update 2025: Government Approves Big Increase, Major Relief For Pensioners