10 Things You Must Know About This Small Savings Scheme Before Investing

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10 Things You Must Know About This Small Savings Scheme Before Investing

During the falling interest rates on FDs, the government steadily reduced the interest rate on small savings schemes such as the Public Provident Fund. But apart from FDs and PPF, analysts suggest that VPF or the Voluntary Provident Fund is still a decent option in the fixed income sector. An employee can increase the value of the EPF contribution under the VPF, but the employer can not surpass the 12 per cent basic pay limit. Beyond the limit imposed by the Employees’ Provident Fund Organisation (EPFO), the additional amount that you contribute falls into the VPF. But before opting VPF as your fixed income partner, you must consider 10 things about the scheme.

  1. An employee has the alternative of investing in VPF for up to 100% of his or her basic salary plus dearness allowance.
  2. VPF suits the interest rate of the Employees Provident Fund ( EPF) and only if you consider it is deducted from your salary, as the name suggests.
  3. For 2019-20, retirement fund body EPFO will provide an 8.5 per cent interest rate on employees’ provident fund(EPF).
  4. Presently, the famous PPF small savings scheme offers an interest rate of 7.1 per cent
  5. At the end of the fiscal year, VPF / EPF rates are revised annually, whereas the PPF rates are updated on a quarterly basis.
  6. Under Section 80C, contributions to VPF are eligible for tax deductions.
  7. VPF’s interest earned and maturity proceeds are tax-free under income tax regulations. The withdrawal guidelines of the VPF fund are the same as EPF.
  8. It must be remembered that VPF withdrawal becomes taxable before completing 5 years of continuous operation.
  9. You can transfer your VPF funds when you switch your job, as the VPF is linked to Universal Account Number (UAN).
  10. Premature withdrawal from VPF balance can also be made accessible for specified purposes, such as the purchasing of a house / flat / renovation of an existing house etc.

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