- Has implicit government guarantee
- Scores high on safety
- Same rate as EPF (Employee provident fund)
For the year ended March 2022, Employees’ Provident Fund Organisation declared a return rate of 8.1%
Tax Benefits
- Amount invested is eligible for income tax deduction under Section 80C
- The interest earned is exempt from income tax too
- The maturity amount is also exempted from income tax
Post-tax return on EPF and VPF is far higher than from bank deposits, where the interest is taxable
Limit on tax exemption in income from interest
- From March 2022, if you put more than Rs 2.5 lakh per year into EPF/VPF account, the interest on the excess contribution above Rs 2.5 lakh is taxable
Assuming 8.1% return rate, any interest income above Rs 20250 (8.1% of Rs 2.5 lakh) will be taxable
Additional tip
- Exhaust other tax-exempt options like the PPF before putting money in VPF.
- This method can lead to better post-tax returns than the incremental investment in VPF.