What do you understand by Voluntary Provident Fund (VPF) and Unrecognized Employee Provident Funds (EPF)? Discuss.

Voluntary Provident Fund

Voluntary Provident Fund refers to the voluntary contribution that an employee makes towards his Provident Fund Account over and above the mandatory 12% of his basic salary. It is fixed at a proportion of the salary and its percentage can not be changed in midyear.

Availability of VPF

Voluntary Provident Fund is available only to the employees who receive a salary and it is linked to it. A maximum of 100% of basic salary and dearness allowance is the cap for how much one can invest in VPF. The sum then gets deducted on a monthly basis and added to the Provident Fund. The employer makes no contribution to the VPF.


  • Contributions made to VPF are exempted from tax benefits. The initial investment, interest earned and maturity amounts are not taxable.
  • The interest rate of VPF is the same as or marginally higher than that of Employees Provident Fund and the rate can be changed by the organization on an annual basis.
  • There is not a fixed compulsory term for the VPF. One has the authority to close the account at the time of retirement od resignation

Unrecognized employee provident funds (EPF)

It refers to a provident fund started and runs by the employer and employees in an organization without the approval of the Commissioner of Income Tax. The tax treatment of recognized and unrecognized funds is different under the law.


  • An unrecognized employee provident fund offers far lesser benefits than a recognized employee provident fund or a public provident fund.
  • If the funds are withdrawn before retirement, the employee’s contribution is not taxable but the interest earned thereon is taxable.
  • The employer’s contribution including the interest earned is not considered as ‘income’ and isn’t subject to income tax at the time the contribution is made.

During the time of withdrawal, both the employer’s contribution towards the fund and the interest are taxable as salary income.


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